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Shorting stocks in upward trends

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Trying to short or put option stocks in upward trends can be a effort of frustration and something we always try to advise against. There's been a lot of interest among subscribers today in shares of software maker Symantec (NASDAQ:SYMC) $38.92 -2.57%.

What's "tempting" about a put play in shares of SYMC is the scenario that this "strong stock" in the software sector may undergo some profit taking as the broader GSTI Software Index (GSO.X) continues to trade heavy.

In past commentary I've mentioned how the market and even sectors tend to act like a snake. The "head" or the stronger stocks will try to pull lead higher, but when something gets hold of the weaker stocks "tail" and pulls them lower like we've seen in recent sessions, the head or stronger stocks often times will see selling as market participants soon find themselves holding their losers and finally begin selling their winners.

Symantec Corporation Chart - Daily Interval

Traders that do have some profits in their accounts and building some gains often times will "take a shot" at a leader and look for a lottery play. A break of upward trend at/near the $37.60 level correlates pretty close with a triple-bottom sell signal in the point and figure chart of SYMC. I like the trade only as a "lottery play" at current levels as the stock's relative strength versus the GSTI Software Index (GSO.X) and the broader S&P 500 Index (SPX.X) is strong.

MACD on the daily chart is rolling lower, but remains above the zero level and did achieve a relative high compared to the late January reading. That higher MACD confirmed the price action in the stock, thus we do not find any "bearish divergence" that this indicator might otherwise hint at. Again, risk capital only.

Since this stock is in a strong upward trend, a "lottery" put player would want to buy time. You can almost count on some strong rallies should the broader markets firm. The SYMC July $35 puts (SYQSG) are offered $2.90 and this would be my choice for a play. No stop would be placed. If a trader can't risk the $2.90 per contract, then they should look elsewhere.

Jeff Bailey
Senior Market Technician
Option Investor

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