While I realize most traders are looking for the broad market to rise over the next two weeks into the July 4th holiday due to end of the month and end of the quarter mark-up, I'm still on the hunt for possible short set-ups in case the up move doesn't materialize.
What I'm looking for are stocks that fund managers might dump to make their books appear fluffier. Since GDP numbers missed expectation it might be possible to find stocks tied to the consumer or economic expansion that fund managers spuriously ran up off the March '09 lows and look ripe for profit taking (see Family Dollar below).
And I always keep an eye out for stocks that suffer from a down side event (such as a downgrade or missed earnings) … which is what my first potential short, Edwards Lifesciences (EW), looks like:
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This appears to me to be a classic Alan Farley "Hole in the wall" swing trade. The event that triggered the initial sell off was a Goldman downgrade and after two days of catching its breath, it may be ready to continue down.
The swing trade is to get in under the most recent low with a stop in place in case you trigger in, but dip buyers push it back up. In this example I used the value of a single 10-period ATR as a stop, but any stop that fits your style is applicable. The plan is to roll the stop down daily until stopped out or you hit a profit target (if desired).
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Family Dollar Stores (FDO) has had a nice run up, but may be ready for a retest of its previous lows as bulls look to lock in end of the month/quarter profits. For this trade I'm using Dr. Alexander Elder's "Impulse System" via Stockcharts.com. In his classic book "Come Into My Trading Room", Dr. Elder writes that his Impulse System is not a mechanical system and it's best not to automatically trade red or green bars without some other pattern or trend confirmation.
In other words, try to trade good looking charts in the desired direction.
In this case the short signal (red bar) appears to be breaking down out of a potential triangle pattern on pretty decent volume (though not stellar) after it filled the most recent gap. Short term trend appears to be breaking down and if there is further follow through, it might make an excellent swing trade.
Trading rules.
A sell signal occurs when the long-term trend is deemed bearish and the
Elder Impulse System turns bearish on the intermediate term trend. For
example, the weekly chart shows a clear downtrend and this means only
sell signals are heeded on the daily chart. Buy signals are ignored.
Elder suggests exiting when one of the two indicators turns up, either
the 13-day EMA or the MACD-Histogram. – Elder Impulse System, Stockcharts.com
Which means we cover if a blue bar prints. Blue painted bars represent system indecision and as such, it's time to exit. As an added bit to Elder's original rules, my own recent testing of this system shows the best profits occur in a three to five day window (with an exit at the end of the fifth day).
Depending out how the futures look Monday morning, I will be entering a short on (FDO) and monitoring (EW) for a possible entry. If the futures are screaming higher, then the trades goes on the watch list for the week.
Good luck and good trading.
~Jack Damn
