How to Identify and Trade A Market Short Signal

Swing traders need a basket of "goto" setups that can be applied to different markets.  Two of my favorite are the breakout-remount and the breakout failure.  Mr. Market, aka SPY, offered us a little of both a few days ago with a remount that failed.

Notice in the chart above SPY has remounted the 50 dma, then two days later closed hard below it.  Over at BullsonWallstreet, hat was our signal to get short.  So far so good, with SPY continuing the breakdown toward the 200 day moving average.  That is our target, where we will look to at least take partial profits.

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RIMM Breakout and Pair Trade

Thus far the "pair trade" I outlined yesterday and entered on Friday is a success, as RIMM broke out in a big way today and AMZN (short) hangs out under the "failed breakout" resistance level.

I took a partial profit in RIMM today and moved my stop up to entry level to lock in gains.

Pair Trade: RIMM and AMZN

On Friday I went short AMZN and long RIMM. This is a "pair trade" trade using the folling strategy:

1- enter one stock long and one stock short from similar fields.

2- the short stock should exhibit a very bearish pattern, while the long stock a very bullish pattern.

The idea behind this trade is that if the market goes up or down significantly, it will likely take both stocks and you break even or have a slight gain or loss. However, if there is not a major market move, the stocks will move according to their patterns. This could give back significant profits in two trades that end up working out.


RIMM is consolidating post breakout of 50 day moving average. AMZN is a "failed breakout" setup.

Is This Breakout Sustainable?

The market and leading stocks are breaking out after a short consolidation period and overbought readings that are still extreme. Due to the extreme overbought readings, I'm taking a few "speculative" shorts. However, they are done with caution and small positions size.

The idea behind these trades is to expect a small loss. If the trade works, it will be a multiple R gain. It goes to my trading philosophy of small losses and multiple R gains.

Setup: Breakdown-Pullback off Trend Failure

CALM broke down from a parabolic uptrend. I'd like to enter short on a weak bounce.

The Obvious Line

The chart below shows the obvious breakout-breakdown level. A break below that level would mark a failed breakout. See my last post on current strategy.

SPY Breaches Key Support Level

As I noted in the member only Trade Report two days ago, I took an early entry short position in SPY (via short ETF SDS)based on the idea that a failed breakout could lead to big gains, while continued up move would stop me out for only a small loss.

Today we got the breach of the 50 day moving average (as of 11:45 ET). The next key level is the long breakout bar posted 4 days ago. If that support level does not hold, I would not be surprised to see a retest of the recent lows, in the $120-122 range.