I ran through my scans tonight looking for a short set-up
or two and didn’t find much (no surprise there). I’m still waiting for the
broader market to roll over to reveal better topping patterns. I did, however,
find a nice looking potential Long and one potential Short if the market
cooperates and dies. Let’s look at the potential Long play first.
This is a daily chart of EMC Corp (EMC). As you can see
it made a nice breakout today on better than average volume. The short term
trend-line is healthy and price is cleanly above the 21-day Exponential Moving
Average. I set the initial Stop Loss at 18.30. The stop is based on a simple
trailing volatility stop. It’s two times the daily Average True Range (ATR). In
this case a 10-period ATR.
I realize stop losses are controversial, but if you don’t
trust yourself to take yourself out of a bad trade before major damage is done
to your trading account, then use one. Stop losses aren’t perfect, but they’re
the best we can do for situations where price begins to run and we mentally
freeze.
Zooming out a bit on (EMC) reveals that it is indeed in a
strong uptrend.
If the market wasn’t so overbought, I’d recommend sizing
in quickly, but with the market stretched so much, it might be best not to size
in full right away. I found many good looking Long trades, but it’s impossible
to recommend becoming aggressively long at this point. I don’t think the odds
favor it in the short term even with the Fed giving away free money.
The one Short set-up I found interesting was this daily
chart of JC Penny (JCP):
The last three days of price action have been kind of
funky, but that’s why I like (JCP) as a possible short. We kind of have a
“hole in the wall” with that gap down three days ago with above
average panic volume. The uptrend was cleanly broken, the bulls tried to fill
the gap, but price quickly found support at old resistance (for now).
Since the market isn’t correcting like everyone and their
dog is expecting it to, if I’m to play (JCP) short, I’d go in 1/2 as a
“pilot position”. If it takes out that support line and violates the
50-day EMA quickly, I’d load up and trail my stop.
Cheers.
Jack Damn
