Technically, the stock still looks great and there are no major divergences. The 52 week high in price is confirmed by RSI, OBV and stochastics. So why am I making an exception to my "don't short strong momo stocks" rule?
The answer is the stock has gone too far without a pullback, is now extremely oversold, and significantly above the 50 day moving average. I recently researched momo stocks going back six years and found this is a good, quick short opportunity.
Looking at this stock over the past year, when it does make a run it lasts 8-10 points (see May, August and February). The stock has currently run up about 10 points. I see a pullback in its future.
Note that I don't go "all-in" with this setup. I use a small position size with tight risk management. For this trade, I went short 200 shares at $44.83. My stop is in the $46-47 range with a target of $40. This gives me a reward to risk ratio of 2:1.
4 comments:
Why do you have MON in the short setup? Isnt it forming somekind of W? Or are you looking at a potential for triple top?
Interesting play on HAL. Im wondering why your target is so far below the possible resistance around $42. Also, there appears to be an inverted head and shoulders pattern confirmed with neckline just around $40, could that be where your target comes from? Finally, did you hold CSX into results?
I felt the same way about POT but my shorts killed me.
Joe--poor volume pattern and diverging obv. I'm not necessarily anticipating a price pattern as I am noticing volume is not confirming the move. This leads me to believe the stock will pullback.
Carmichael--Pot is not quite as extended as HAL. A 20 point move in a $185 stock is not the same as a 10 point move in a sub 50 stock. POT would have to move another 15-20 points higher to reach the "extendedness" of HAL.
Eochaidh-Hal target is based on the breakout at 39-40.
Post a Comment