SSS - BIDU, SINA Initial Profit Objectives Achieved, but Further Downside May Exist

Published : September 29 2011 at 16:34 ET

Both SINA and BIDU dropped below their downside profit target prices as outlined on daily charts and discussed in our Short-Sale Set-Up report that we sent out later in the day this past Tuesday, September 27. Those target prices were 114.30 for BIDU and 76.48 for SINA. Both of the stocks have skidded well past those downside profit objectives, and while one can certainly think about taking full or partial profits here, one could always consider giving the position more time given the relatively weak closes on both of the stocks with both stocks ending the day well below those downside target prices. Those are ugly downside breaks on massive volume, and the "velocity" of the selling would seem to imply further downside, and quickly. 

A safe way to play this would be to simply use the downside profit objective price, say 114.30 for BIDU, for example, as your absolute upside stop from today's close, and you could do this with your full prior position or 1/2  or 2/3s if you feel a need to lock at least some gains in. The same could be done for SINA at 76.30. This way, if one decides to hold on for a bigger gain, they would only be stopped out at the initial downside profit objective, which for some might be more psychologically palatable. NFLX is a good example of how a short-sale position can just implode and continue imploding, so one can see how the entire profit-taking side of short-selling  is far from perfect. Throw in a volatile market and the process is complicated even further. The best you can do is set reasonable profit objectives, take positions, set stops and then trailing stops on the way down, and then see watch how it all unfolds. When it unfolds nicely it can be a beautiful thing.  

The market's action is extremely volatile and divergent currently, with big NASDAQ stocks getting pummelled today while money piled into Dow 30 stocks. Meanwhile, AAPL, AMZN and CMG are teetering at their prior breakout levels. This should be interesting to see how this continues to unfold, but so far the last two days have been nice for the shorts, particularly those who may acted on our SINA and BIDU reports this past Tuesday.

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