PPR - Thoughts on the Short Side for another Manic Monday

Published : June 20 2011 at 11:08 ET

The market is staging a logical reflex rally this morning, but on the short-side it appears that a stock-by-stock approach is best here. The retailers, UA and LULU, are holding up and thus are not confirming our thesis so far. LULU has moved just above its 50-dma, as it did on Friday, but that is our guide for an upside stop. The more risk-tolerant can of course use a point a little higher if they so choose. Our approach however is to consider that just as strength begets strength, weakness begets weakness, hence we prefer to allocate capital towards shorts that are working. This puts UA and LULU less in the picture, but that doesn't mean they can't roll over if the market continues to weaken, so they should remain on the watch list.

What we like here instead is the weakness in AAPL and NTAP, which have been feeble in spite of the general market rally. If NTAP breaks short-term support in the low 49 area, then the 46 area comes into play. AAPL, meanwhile, gapped down this morning so for those aggressive players the bottom of the gap-down this morning, the "falling window" as they say in candlestick chartland, at 317.42, would be a level that we would not expect AAPL to rally back above. If the market were able to stage a more convincing rally from here, there is always potential for AAPL to stage a reflex rally all the way back up to its 200-dma. For now that is our ultimate upside guide for a stop on AAPL, with the idea that a potential short-term low might be found at the 297.76 low of November 2010.

Meanwhile LVS remains in play but with no discernible add/entry points, while FNSR has been baked to a crisp since we first discussed it in previous SSS reports in the mid- to low-20's.

For the purposes of fair disclosure, we currently have positions in AAPL and NTAP. We tend to trade with very tight stops given our aggressive posture, so please make sure you set stops that are reasonable (e.g., 5-7% MAX) and that are set according to your own position sizing and risk tolerance.

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