SSS - Thoughts on the Short-Side

Published : June 17 2011 at 10:14 ET

The reflex rally following yesterday's undercut of the 2603 level on the NASDAQ and the testing of its 200-dma by the S&P 500 has led to a nice bounce today, helped along by news that Sarkozy and Merkel, the French and European leaders, are assuring us all that Greece will get what it needs. This is a typical type of news driver for reflex rallies.

We note that AAPL is now trading back below its 200-dma, and we view the stock as a strategic short, e.g., potential lows in the 200's, while NTAP and LULU both remain below their 50-dma. UA, which tends to be more volatile, has gapped above its 50-dma, our rough guide for a stop, but given that this stop is extremely tight, one could also choose to see how it closes first, depending on one's risk tolerance.

This rally in the market and short-sale target stocks may be be shortable, but the idea here would be to short into the rally, and if you are not showing some progress by the close then you could back away or elect to work off the upside stops when it comes to covering. The general market may rally one day, or it may rally for a longer period of time, but this cannot be determined right away. The key here is to watch short-sale target stocks, and make decisions on whether to begin entering a short position as they rally up towards logical areas of resistance, such as that AAPL has encountered now at its 200-dma, or NTAP and LULU at their 50-dma.

For the purpose of fair disclosure, we currently have positions in NTAP, LULU, and AAPL.

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