Sunday, July 23, 2006

Cisco Systems

Like I've said, I base my shorting strategy on William O'Neil's book. In it, he and Gil Morales give a checklist of technical action that one should look for when shorting stocks. They provide a few examples and I've reproduced one of them here. It is Cisco Systems just before the bubble burst.

  • Look for a head and shoulders top. A gap island top is a bonus
  • Don't short at the "obvious" point. You'll get stopped out
  • Look for rallies on weaker volume, or wedging
  • Wait for 3 or 4 rallies above the 50 dma. This is probably the hardest call. I think the best bet is to short after the second rally and if you get stopped out, just try again after the next price break.
  • Don't make the obvious short sale when price breaks the neckline.
  • Wait 5 to 7 months after the absolute top before shorting.
  • Don't short stocks with small floats. The more stocks splits the better!
  • Most importantly, make sure the market is in a downtrend.

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