Tuesday, January 29, 2008

Short Play: Deck

DECK is one of those fad short plays I have talked about in the past. The stock looks to be forming a topping pattern that could send the stock back where it belongs (currently has a higher PE than AAPL).

Let's take a look at the chart:



The first thing that jumps out to me is the "top-ish" head and shoulders pattern that is forming. To complete this pattern, price would have to break below the line I have drawn that converges with the 200 day moving average. A break of this level would have the benefit of providing two resistance points, the moving average and price action.

Another key element is the distribution pattern. Note that high level of volume on the breakdown of the 50 day moving average and the break in the obv trend. This is a sign of a broken stock.

Finally, one of the few times during the trend, stochastic has turned over well before reaching overbought levels. This means buyers are not willing to buy the stock up at high levels.

There are two ways to play this stock short. First would be two enter on a pullback (up) to the 50 day moving average. The other would be to wait for a break of the 200 day moving average. I will most likely enter in increments, shorting with a small position on a bounce, and adding if there is a break of the 200 day moving average.

1 comment:

Verio401 said...

I see exactly what u are seeing, I have to say both setups make a lot of sense.Looking at the chart the less risky choice would be to short at the 50D Ma at around $136 , and put a stop right above 140. What would your stop be in the second situation.The 200 MA is at $113 , it could easily go to resistance at 120.Thanks

Verio401