October 17th 2007
Trading stocks that roll over.
Interesting development in the world of investing. Looks like the NASDAQ and DOW are starting to roll over. Is this just a regular correction or the beginning of the end of this bull market? I have no idea, but let’s look at how to profit from this move.
It all starts with an extreme move. Like the marubozu. I want to see a black marubozu(red on my charts). This begins to crack the confidence of investing public. After I have identified a handful of uptrending stocks with a black marubozu, I wait.
What I want to see after the strong down day is a consolidation. Typically this will take the form of a base or a bear flag. The investing public is starting to feel a little better about their buys and the financial media continues to cheer stocks on. But then there’s another down day which is my setup. My setup occurs when another strong down day breaks the support of the bear flag/base on heavy volume. Now the down days come faster and the investing public beings to dump shares en masse which drives the price down farther and increases the value of my shorts.
Let’s take a look at some stocks that are currently displaying potential short setups based on this strategy.
All these stock are beginning to role over. IFN has the best wide range down day. Now my strategy is to wait and see. There are many other stocks forming this pattern right now. It’s worth your time to seek out and add stocks like these to your watch list.
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2 Comments »
Bill Luby on 17 Oct 2007 at 7:01 am #
Good blog and good topic, Jonathan.
I’m curious what the signal(s) is (are) that will eventually cause you to open up a short positions.
FWIW, I am currently short BIDU, GRMN and DRYS (probably a little early here) based on some similar thinking.
Cheers,
-bill
Jonathan on 17 Oct 2007 at 9:40 am #
Hi Bill.
The pattern I am trading is an avalanche ala Toni Hansen. An Avalance is the first low(marubozu) and lower low(break in the bear flag) that starts a new downtrend. The break of support on the bear flag/base is my signal. Now the flags still need to form, but the large down day on such strong stocks at least gives me the potential for this type of setup.
Thanks for taking the time to post. Happy Trading.
Jonathan