What I look for in a short setup | stockbee

11/20/2014

What I look for in a short setup


NFLX is a short I initiated yesterday. I was watching it for couple of weeks for possible short entry.

NFLX was a market leader for last few years. Recently it missed earnings. That lead to a big volume drop . Which was followed by dead cat bounce on low volume. Yesterday that bounce attempt failed with range expansion on high volume.


Once a stock misses earnings after a big rally and a history of good earnings surprise previously, stocks tend to move in direction of the initial earnings reaction. On short side this effect gets delayed as bargain hunters buy on weakness.

It is too early to say whether the trade will work but these kind of failure setup after long rally have good risk reward potential.

In order to find them I look for stocks that had long periods in uptrend and that have recently dropped in momentum. (The momentum is calculated using 65 days Trend Intensity). Once the momentum shifts you have to find good shorting point.

A similar setup I am watching currently is SKX. After a multi month rally it recently had big volume drops followed by dead cat bounce. I have it on my short watchlist.



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