HedgeFundLIVE.com — On March 7, I wrote a blog titled “Short This Market- Now’s the Time.” Didn’t get the greatest feedback on a couple sites on this blog. Today we broke the Feb.24 low of 1292.50 on ES. I feel comfortable with the short thesis. As I mentioned numerous times in my blogs, trading is all about timing. Everyone knew a pullback was coming, but when do you start piling into your shorts? For me, March 7 was right about that day. I don’t think this is a missed opportunity; it is not too late to short. Names that I have been looking to short are stocks in the growth sectors (for a background on growth vs. defensive sectors and how they perform in up vs. down markets click here), namely Tech names. I am staying away from the Financial and Energy sectors, although they are growth sectors as well: Financials because of upcoming release of stress test results, Energy because they will benefit from the oil rally, which I believe has room to run and will take crude up to 120ish level. I could also look to Industrials, another growth sector, but I personally don’t know enough about that sector and so don’t feel comfortable in it.
Within growth sectors, I would like to short names that have run up and are near their recent highs. I am being very careful not to choose the very strong stocks, however, as that is too much of a tape fight for me to handle (for example, EMC, which looks like a great short from many technical standpoints, but too strong for my liking). Instead, I am looking for names that are near short term highs, but have shown signs of clear weakness in the past six months.
Similarly, I am looking at how names performed in the May-July sell off that occurred last year. Names that got crushed the most during that time are the ones that I am looking to short. I am also looking for names with strong support levels below–strong meaning they have been tested frequently in the past 12+ months–as they will likely be tested again now. Names like EQIX are what I’d like to short and I can see that stock trading back down at 75 again soon.
I also don’t mind shorting names that have been range bound for the past several weeks as I believe the action will resolve itself to the downside in this market, especially if the stock has not been in the middle of a strong run up: names like ANN. WHR is also a potential short candidate for me as the stochastic has just entered into overbought territory and has been in an overall downtrend; WHR is way off its 52 week high from the run up in April last year.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.