Normally, when one is hunting for intriguing short-sale setups, he might think the way to go is to look for something that’s really expensive and near lifetime highs. I’d like to offer a fresh example of something that doesn’t fit this mold.
Here is Unity Software (symbol U) which, as you can see by the tint, is sporting a remarkably well-formed head and shoulders pattern. It has all the characteristics you’d want to see: a well-defined shape, an easily identified neckline, a sharp drop, and a full retracement. This looks just a great place to short, or at least watch very closely to enter a bearish position.
If you back up to the fuller history, however, you can see how Unity has already been totally clobbered. Even after its recent recovery, in which it bounced 50%, it is still one-tenth the price it used to be. So, wouldn’t it be insane to short this?
I don’t think so. The fact it has lost 90% (and 95% at one point) of its value sort of tells you what you need to know about how the company is doing, particularly in this completely laughable everything-goes-up market. Something must be deeply and seriously wrong with U.
Thus, I think the H&S “top” still prevails, even though the top is far, far beneath most of the stock’s history. I’ve put my money where my mouth is and bought January $24 puts this morning.
