Short Entry on TD Sequential Failures

Paul Tudor Jones said that when the TD Sequential or TD Combo doesn't work, "it really doesn't work". For this reason, it is sometimes suggested that one go short as soon as a TD Sequential or TD Combo closes below its stop-loss point. I have been looking into this recently and have put together some charts.

Notice how the stop-loss area can be treated as the same stop-loss short postition after the TD Sequential failure. In some cases, the price bounces back and reaches into the stop-loss area. In such a case, this offers someone a late entry point to go short or allows someone who already is short to add to their position.

Given that large short-covering spikes can be so incredibly nerve racking, having a well defined entry and exit strategy would be helpful to those who want to play both the bull and bear sides of the market.

New short on the bounce: EZCorp (EZPW)

One thing that I'm learning about bear markets is to never worry about missing an entry point because there will always be a bounce. I've been watching EZCorp because it looks to be entering its mark down phase. EZPW used to be #1 on the IBD 100 and is now showing signs that it is finishing off a rounded top pattern. It is also consistently below the 10 week moving average. Fundamentals might say that a pawn shop company might be coming into its sweet spot with all of this sub prime crap, but the chart certainly says something different. I think EZPW might be a victim of being over owned by the fund managers. I think 90% of the float is owned by institutions.

When the market looked like it was bouncing this morning, I put in a order to short EZPW at 12.16. My target for now is 10.50 and depending how the volume looks, I might hold longer. Notice the weak volume on the bounce and how it stalls inside the swing point of 7/25/07. There are also some nice TDST lines to guide the resistance and support areas.

Still watching ATI

The recovery of Allegheny Tech. (ATI) is just giving me more confidence that it is a great short candidate. Although I covered my first ATI short the other day, I think that the chart's price and volume action is just screaming to short it again once it regains its 50 dma and then breaks down below it. Just look at the recent recovery. The price keeps going up on lower volume, which is a very bearish sign.

That last short was good for a quick 10% gain. I have a feeling the next one will be good for even more.

Market leaders of the last bull market rarely lead the next.

When to cover?

Caught a downgrade today from Prudential. Down another 4.4%!

Am I getting greedy? It looks like we are headed for the 200 dma (53.31). We have increasing volume on each successive down day.

I think I'll just tighten up my stop and see where we'll go.

Short initiated today

I shorted Allegheny Technologies today. I put in a stop limit order at the 50 dma when the market gapped up this morning. I was filled at 63.09 when the market reversed itself later in the morning.

The chart has all the hallmarks of a good short, but I'm nervous about the near term reaction to the Fed meeting on Teusday. As a result, I've put in a tight stop-loss at 66 bucks. If I get stopped out I'll short it again if it crosses the 50 dma again.