Last week PremierMarkets.com set up a potential bearish trade in shares of QLogic, but at that time we were looking for a rally near the $56 level to try and establish a bearish trade and short/put the stock. Today's higher open was immediately sold into and now supply looks to be in firm control as indicated by the spread triple bottom sell signal that occurred at the $48 level. In today's hot list, we added the stock to our profiled portfolio and outlined the trade as follows. Action point to short is at $47.06, trailing stop begins at $55 and will target the bearish vertical count at $37 as our target. Once the trade begins to progress, we will adjust the stop lower, but want to give the stock some room to work in the short-term.
QLogic Chart - $1 box
The longer-term trend remains negative in shares of QLGC. One reason we're only profiling 1/2 position short in the stock at the $47 level is that there is a downward channel that may provide some short-term support at the $45 level. Nonetheless, the stock may simply slice through that level and head lower and we'd want to have some type of interest in the stock should it fall precipitously from current levels. Our thinking is "if the market is willing to sell into good news, what might it do if we get some bad news?" Since the PremierMarkets.com only has profiled shares of eBay (NASDAQ:EBAY) as short, we feel a traders account might be looking for another bearish play and this is one that looks to have some downside still to come.
Five-year YIELD below 4.7%
We're also using the recent trading in the 5-year Treasury YIELD ($FVX.X) and break below the 4.7% level as a "reason" to be implementing the above bearish trade in shares of QLGC. Should we continue to see buying the Treasury bonds, it's our belief that this is a signal from market participants that it still finds the safety in bonds preferential to what upside there is currently for stocks.