On Shorting Relative Strength. $WTW $SYY $study

-I  am often tempted to short stocks showing relative strength. This can be dangerous and goes against perceived "trading wisdom" . In fact I have blogged before about the importance of relative strength :

                        http://jpotrading.blogspot.com/search/label/relative%20strength

-If I do this I must first wait for relative weakness to manifest itself by, for example, a red 5 minute candle bar that takes out two or three of the previous five minute bars. The exact point of where you go short will depend on the stock, the general market strength, etc, but a valid short is now possible. I show this in the two charts below for $SYY and $WTW .

- The most important thing now is to input your stop-loss order somewhere close to the previous high as shown in the two charts. If you do not do this "horrible" things can happen....imagine not putting the stops in the chart below for $WTW .

Relative Strength by Joe Fahmy

Interesting lecture on Relative strength by Joe Fahmy.

Short Weak Stocks; Part 2 - Absolute and Relative Weakness $study $akam $klac $spy

In the last post I mentioned the need to short weak stocks rather than strong ones. However maybe I should have said that the really important point is to short relative weakness. Let me clarify with two trades I took yesterday.

-AKAM was basically a weak stock yesterday. It underperformed the SP500 in absolute terms.  However what really made me short it was its behaviour around 14:40 where it began to exhibit pronounced RELATIVE WEAKNESS....the SP500 was making new highs and AKAM was popping up in my daily low screen. So here we have a stock that through its ABSOLUTE WEAKNESS indicated it would be a good intraday short, and that through its RELATIVE WEAKNESS confirmed and triggered my trade.

                                         

-KLAC on the other hand was a very strong stock yesterday...it exhibited clear ABSOLUTE STRENGTH. I was tempted to short it but waited for RELATIVE WEAKNESS to manifest itself, which it did from around 14:00 onwards.

Basically paying attetion to the relative perfomance will give you a hint that its ok to put on a short by showing that a weak stock is not simply establishing the low of a range, and that a strong stock is not simply making a pullback before going higher again.

Short Weak Acting Stocks. $akam $adtn $cree $study

If you are going to short a stock, choose one that shows  weakness during the course of the day. Below are the graphs of three I traded to the short side profitably today.

-What they all have in common is that they start exhibiting relative weakness from the start. On a strong up-trending day they kept making new intra day lows. So again and for my benefit SHORT WEAK ACTING STOCKS NOT THOSE THAT ARE ACTING WELL!.

The Opening Behaviour Gives Clues Again; Gap Direction and Initial 15 minute Range. $AAPL $GS $study

-I have blogged before about the importance of the opening level/behaviour. http://jpotrading.blogspot.com/2010/12/importance-of-opening-level-in-gaps-ccl.html

-Two days ago AAPL had what were apparently stellar results (again), and multiple upgrades. But it was only trading between up 0% and up 3% in pre-market...not impressive. Obviously the great results were competing with the opposing force of Steve Job´s medical leave.

-The stock opened at the pre-medical leave highs and quickly went down. This was a strong clue to the question of whether AAPL  was going up 5% due to results or down due to the medical leave.
- The pullback off the early lows was also instructive...its high coincided almost exactly with the previous day´s high...once this failed...

-GS had results that were not impressive, but far from dismal. It gapped down and the question was now what? It was range bound by the initial 15 minute candle , and one could trade this, but the "real trade" came with the brake of the opening 15 minute candle...and appropriatly the brake came in the direction of the initial gap down.