Option Investor
Market Updates

Questions regarding.... why are you bearish now\?

Printer friendly version

I received an excellent e-mail today from a subscriber questioning my "newly found" bearishness in shares of Expedia (NASDAQ:EXPE) $65.68 -1.96%. I don't consider the e-mail a "challenge," but perhaps I need to explain my view on the markets and action once again.

Too often, I think bulls and bears try and "anticipate" things. I wish I could show you all, the various e-mails I've received on Expedia (EXPE) over the past year. Many were bearish all the way from $50 up to $80 on the thought the stock was "overpriced." While I couldn't hold my own in any disagreement with those points, there was a lot of money lost by bears from $50 up to $80.

Expedia Chart - $1 box

I can't argue that I may be a "little late" in an EXPE short, but the point and figure chart tells me that I'm "way early" as it relates to the longer-term trend.

Yes, many traders focused a great deal of attention on EXPE from the bearish side all the way from $50 up to $80. Then further focused attention on the stock between $72 and $84.

However, in the meantime, I've tried to get traders focused on other stocks that were giving similar triple-bottom sell signals like EXPE is doing now, but other stocks that had broken longer- term upward trends where supply was showing greater control of stocks and had a higher probability of getting creamed to the downside.

Now, here we are.... several months later. How much downside is left in a stock like Ciena (CIEN) at $4.28, if short/put at $7 and down about 38%. Was it a better short at $7 than EXPE at $84 (at the tippy top)? A trader can perhaps do the math, but on a percentage basis, CIEN was the better short up to now.

Williams Company (WMB) $7.48 -0.26% was also a "better short" at $14 than EXPE was at $84 (the tippy top) on a percentage basis.

Sure, I pick a couple of stocks like CIEN and WMB that I've profiled as bearish in recent weeks to try and make a point. I'm not sure I ever wrote that EXPE wasn't a good short/put trade, but perhaps I just thought there were some "better" trades at hand based on the market environment and what I have observed over time to help us try and manage risk/reward in our accounts.

I won't argue that EXPE is perhaps not the "greatest" put trade now, but at least there's still some downside to a target that makes technical sense.

Traders that have traded some puts in weak stocks should be finding some of them nearing bearish objectives where risk/reward becomes more unfavorable.

It's at these times, when bears lock in gains on those trades, then begin "rolling" to other stocks that look to be "finally" breaking down. Stocks where some overhead supply is "finally" building and where a bull holding that stock, that continues to hold other stocks that are now at major losses in their account, "finally" sells a winner.

It's a pattern that happens more times that not, in what may indeed be the latter stages of a bear market.

As I scour the various charts of stocks in the market, it becomes increasingly difficult to find stocks where some technicals "line up" with any remaining bearish vertical counts.

I can only imagine some other stocks where traders are just shorting some stocks that "look to be breaking down" right at/near some bearish vertical counts, where risk/reward is not good for a bearish trade.

Jeff Bailey
Senior Market Technician
Option Investor

Intraday Update Archives