Downside moves in market are punctuated by counter trend moves. Last week was good example of it. The perma bears as well as perma bulls turned bearish ,only to get stopped out in most cases. When playing the short side just selling short weakness may not be the best strategy. Anticipatory entries work best on short set ups.
While I am always willing to buy a breakout on long side, I am extremely reluctant to sell downside break of same magnitude. The odds of it continuing are low. You have to wait for the immediate bounce back to play itself out before finding a low risk entry. That is what is happened to lot of traders who excitedly sold short after market weakness.
Similarly on individual stocks lot of time I see people shorting top relative strength stocks. While you may get 5-10% fade move, in most cases on stocks V reversals are rare. A stock with high relative strength will in majority of cases go sideways for considerable period of time (up to 6 months to 2 years), before offering a long term short opportunity. At least that is what my study of momentum stocks shows.
The probable reason for such behaviour is that earnings trends persist. That is why to find good shorts you need to find again sudden shifts in earnings or in earnings expectations. Analyst taking down their earnings estimate is one good way to identify short sells candidates. When you see a series of analysts pulling down their earnings estimates on a top performing stocks you have to be careful.
PSPT was one such stock recently, which had this analyst behavior. The Zacks and Starmine methodologies use that approach. Even IBD in its commentary on specific stocks in IBD 100 or in stocks on move will mention such red flags. Those reading IBD carefully would have noted the same thing being mentioned by IBD about PSPT couple of times in recent month.
So ideal short set ups are around on stocks which had good relative strength or were members of 100% plus universe 2 years to 6 months ago. Many of those stocks will have accelerated moves down in corrections. Many of them have been stuck within 20 to 25% of their high in sideways move for long. They are the ones which generally have smooth moves down in corrections.
Total 4% plus bullish breakouts=79
Total 4% plus bearish breakouts=55
65 day bullish/bearish ratio= 613/314
Stocks up 50% or more in a month=8
Stocks up 25% or more in a month=46
Number of stocks with 100% plus move =293
Number of stocks up 200% or more = 60
4% plus signals for 100plus universe=18
4% plus signals for 200plus universe=3
Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000.
ALAN,Alanco Technologies (Google Yahoo Earnings Chart)
ARGN,Amerigon Inc (Google Yahoo Earnings Chart)
BCSI,Blue Coat Systems Inc (Google Yahoo Earnings Chart)
BIG,Big Lots Inc (Google Yahoo Earnings Chart)
BTJ,Bolt Technology Corp (Google Yahoo Earnings Chart)
CVNS,Covansys Corp (Google Yahoo Earnings Chart)
FSYS,Fuel Systems Solutions Inc (Google Yahoo Earnings Chart)
JSDA,Jones Soda Co (Google Yahoo Earnings Chart)
LJPC,La Jolla Pharmaceutical (Google Yahoo Earnings Chart)
MVIS,Microvision Inc (Google Yahoo Earnings Chart)
NYMX,Nymox Pharmaceutical Corp (Google Yahoo Earnings Chart)
OMRI,Omrix Biopharmaceuticals Inc (Google Yahoo Earnings Chart)
ORCH,Orchid Cellmark Inc (Google Yahoo Earnings Chart)
SNCR,Synchronoss Technologies Inc (Google Yahoo Earnings Chart)
SVNT,Savient Pharmaceuticals Inc (Google Yahoo Earnings Chart)
SYNL,Synalloy Corp (Google Yahoo Earnings Chart)
TAG,Tag-It Pacific Inc (Google Yahoo Earnings Chart)
TSL,Trina Solar Ltd. (Google Yahoo Earnings Chart)