- Downfuel based shorting (in most market environment)
- Former leaders breaking down
Downfuel Based Shorting
The concept behind this method is to find stocks which have fundamental factors favoring likelihood of accelerated down move.
I am just listing broad outlines of those criteria. In his book it is detailed with exact values.
- Earnings based criteria like loss, or earnings decline, at least 2 quarters of down earnings.
- P/E> S&P P/E
- Declining sales
- IBD EPS rank <50
- Low ratings by Value Line, Zachs, or Lowry's rating services
- Yield <5%
- Debt levels
- Should have fund ownership >30%
- Low relative strength
The exit is based on rigid criteria which look for either earnings turnaround or relative strength turnaround.
Former leaders breaking down
The concept behind this shorting method is to look for topping patterns on 6 month time frame on former leaders or stocks which have gone up a lot in bull market.
- 6+ topping patterns (Double Tops, Triple Tops, and Head-and-Shoulders Tops)
- P/S > 3 (ideally >10)
- P/E >the last year's earnings growth
- P/E> the next year's projected earnings growth
- Slowing earning growth