Off your game?
Read our free, updated as of Mar 3, 2022, Dr K report on how to optimize your mind and body so you can boost your focus when trading the markets.
Meet Dr K !
Chris Kacher
  • Nuclear physicist
  • Stock & crypto market wizard
  • Blockchain builder
  • Bestselling author
  • Top 40 charted musician
  • Biohacker
  • Former computer hacker
Your email will always remain private.

Short-Sale Set Up - Review of McDonald's (MCD) and Facebook (FB)

A week ago we put out Short-Sale Set-Up Reports on MCD and FB. The initial premise for doing so was that both stocks are de facto prior breakout failures that are rallying back up into potential areas of resistance. Obviously, the first sign of a potential late-stage base-failure or LSFB beginning to form is going to be a failed base breakout attempt.

MCD failed early in February after attempting to breakout from a slightly ascending type of base formation. The high-volume breach of the 50-day line brought the stock into play as a potential LSFB short-sale set-up. Since then it has chopped around the 50-day moving average in what appears to be a short bear flag. This remains in a shortable position, and we suggested using the 120 price level as a guide for a tight upsides top.

So far the stock hasn't pushed above the 120 level, but nor has it broken down in a clean downside breakout from the short bear flag. In our view, this will likely ONLY OCCUR if the general market fails. Therefore, timing a short-sale to coincide with such a potential general market failure will be key in turning this into a successful trade.

Facebook (FB) posted a trendline breakout and then a new-high breakout in early February, and like MCD immediately failed by breaching its 50-day moving average (as well as the prior breakout point) on very heavy selling volume. This action was the first sign of a potential LSFB short-sale set-up starting to form. After filling the gap from late January, the stock has since rallied back up through the 50-day moving average on declining upside volume.

At the time of our initial report, our premise for the SS Set-Up was based on the initial LSFB with the idea that a high-volume breach of the 50-day moving average would confirm a possible retest of the early February lows and the 200-day moving average. FB has been able to rally further above the 50-day line, but volume has remained light.

On Friday of this past week, the stock pushed up towards the new-high base breakout point around the 110 price level before reversing on light volume. As a big-stock leader, FB tends to be a market stock, and so has drifted higher as the market has pushed higher off of the mid-February lows. 

Given that MCD and FB remain two of the biggest big-stock leaders that are still within reasonable range of their prior 52-week highs (MCD is -6% from its 52-week high, FB is -8% from its 52-week high), we would expect that any substantial breakdown from here will likely have to coincide with a general market rally failure.

It is important to understand that a short-sale set-up formation is merely the first half of the equation when it comes to a potentially profitable short trade. Breakdowns in the patterns of individual stocks tend to coincide with general market breakdowns. One need only study our short-sale targets from last year, TSLA, AAPL, and NFLX on a comparison chart with the NASDAQ Composite Index, below, to understand how these tend to play out within the context of the general market action.

These three stocks have correlated quite closely to the NASDAQ's breakdown so far in 2016. FB and MCD do not. However, each new leg in a possible bear market will see new "waves" of leading stocks breaking down. Stocks that are less developed in their potential topping patterns will tend to eventually breakdown in subsequent market down legs. 

We can see this by comparing FSLR and AAPL to the NASDAQ top in October 2007. As the NASDAQ formed a first short leg down in the 2007-2009 bear market, AAPL continued to hold up until early 2008. At that point it topped and broke down, and this coincided perfectly with the NASDAQ's second bear market downleg. FSLR kept making higher highs well into May of 2008 before it finally topped and the completely blew apart in September 2008. This huge break coincided with the NASDAQ's third bear market down leg.

Our thesis for FB and MCD as potential short-sale targets rests on a similar outcome. If we are in a potential new bear market, and have seen the initial downside legs in this bear market, then we might expect to see stocks like FB and MCD eventually come apart in conjunction with later bear market downlegs in the general market. That is what we are watching for here with these two initial LSFB type set-ups. 

This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2024 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.
Copyright ©2024 MoKa Investors, LLC DBA Virtue of Selfish Investing.
All Rights Reserved.
privacy policy