Option Investor
Market Updates

Observations have me looking for potential shorts

HAVING TROUBLE PRINTING?
Printer friendly version

As a short-term trader, some of the things I've seen lately have me looking for some short candidates. Here's a pattern I've picked up on lately and it looks to be working to the downside. On a 60-minute chart, look at stocks that have been breaking upward trends along with their 50-period and 200-period MA's on their charts. We saw this type of activity in VRSN on Friday and should have learned from that. Now it's time to make some money from that lesson.

InfoSpace Chart - 60-minute interval.

Shares of InfoSpace (NASDAQ:INSP) would have been a nice bearish play this morning at the opening of trading near $8.25 with a trader's target of $7.12. While $1 doesn't seem like a lot, it represents an attractive percent gain for a bearish trade if this type of target is achieved. The above chart was more bearish than VeriSign (NASDAQ:VRSN) as the stock of INSP was below the 200-period MA.

Cyclicals and Retail still key indices to be monitoring.

Two groups that could still be giving longer-term bulls at the table are the deep cyclicals characterized by the Morgan Stanley Cyclical Index (CYC.X) and retail stocks or the S&P Retail Index (RLX.X). One of my scenarios for a bull market going forward was for both of these groups to perform to the upside and give traders and investors a pulse on what the MARKET might be thinking going forward. The technicals of these two indexes say there's a bull in these two indexes. While we saw a pullback in both of these indexes in the past week, it may have just been profit taking and the bull might try and run the table from here.

Morgan Stanley Cyclical Index Chart - last eleven months.

I can only "fit" so much data on a chart, but the last eleven months on a daily interval show that a new "cycle" is underway for the cyclicals. It would really take a break below 485 (upward trend, 50-day and 200-day) to get me concerned that the economy is in further danger of a hard landing. Traders that understand the "length of trend" will see that an intermediate- term trend has been broken to the upside, thus putting in place our short-term upward trend. Long-term trend is still down and has been in place since January 10, 2000. January 10th is also the "anchor point" for where we established our intermediate-term downward trend.

S&P Retail Index Chart - last eleven months.

Recently I added a retracement bracket to my daily chart of the S&P Retail Index (RLX.X). A retracement level from the highs to lows shows how this bracket recently came into play on a rally to 916. Longer-term I'd say the current chart tells me the MARKET thinks everything is OK going forward. Downward trend was broken in early December and trend is up. This morning I highlighted a bullish trade for aggressive short-term traders in this index. Little did I "know" that such a rally would take place today. For the first 30-minutes of trading the RLX.X just sat near Friday's close, then all heck broke loose to the upside. Short-term index players love these kinds of moves.

Jeff Bailey
Staff Analyst
www.indexskybox.com
www.OptionInvestor.com

Intraday Update Archives