Thursday, December 01, 2005

Short Selling in a Strong Market

Short selling includes the word “short” for a reason……you’ve gotta be quick! Stocks tend to fall faster than they often climb, for a few reasons. One reason stocks fall quickly is that high trading volume is not always required (in the form of a large seller) to push them lower – bidders can simply step out of the way and cancel their orders. Another reason is that owners of the stock can be prone to panic selling or capitulation once things begin to turn ugly.

In uptrending markets, shorting stocks gets tricky. One approach to shorting in a strong market is to look for rising support in the form of trend lines. Shorting in situations like this is best done in a day trading situation to catch a quick move down rather than fighting the market trend.

Wednesday night in my stock newsletter, I highlighted SNDK as a weakened stock which looked to be completing a minor bounce. This created a potential short sell situation to be played as a day trade in spite of the climbing NASDAQ. Additionally, SNDK has been prone to gapping a number of times lately, preventing it from being an ideal swing trading stock. A small rising trend line provided the trade entry, which was a downside break of $50.65.

Today as the stock broke the support area at $50.65, SNDK headed south in a hurry, falling more than $2.00 in just an hour. This made for a very nice day trade, which lasted only a short time (pardon the pun).

When you short sell in a market that isn’t downtrending, be quick and take profits when you have them. Then get back to your shopping list and find some long exposure!

Jeff White
President, TheStockBandit, Inc.


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