SSS - Follow-up on Apple (AAPL), Alexion Pharmaceuticals (ALXN), and more re: the Short Side of this Market.

Published:

31 Dec 2012 17:19 ET

Both AAPL and ALXN remain in "right shoulder territory" within their overall head and shoulders formations, and AAPL is rallying 2-3% as of the time of this writing on the basis of a positive Barron's article over the weekend. Volume in AAPL started out strong this morning, but it is now starting to wane and so we would contiue to view any rallies in AAPL as potential short-sale opportunities, despite using the 10-day line at 520.04 as a short-term stop-out level for concentrated positions. With the stock getting through the 10-day moving average on an intra-day basis, it is now a matter of seeing how the stock closes. Intra-day the stock has put in a short-term high at the 527.22 level, so one could put out a short probe into the rally above the 10-day line using today's high at 527.22 as a quick stop if AAPL continues to rally. Longer-term we believe AAPL has the potential to move into the 400's once it breaks below the neckline of its current formation, and so the task of any short-seller should center on how to position for such a break if and when it happens.

ALXN is hardly budging this morning, up 22 cents as of this writing. We continue to view this as shortable between current levels and the 50-day moving average, currently at 94.67, using the same 50-day line as a guide for an upside stop.

Assuming there is some sort of fiscal cliff agreement, short-sellers might view any news-related rally opportunistically, watching for rallies in short-sale target stocks to short into. In this regard, we would watch for a stock like Priceline.com (PCLN) to approach its 50-day moving average at around 620 as a shortable rally, although it is within 1.5% of the 50-day line currently thus in a reasonable short-sale position using the 50-day line as a quick upside stop.

Given the extreme news influence today, short-sellers should remain nimble and opportunistic, being ready to stop out quickly if short-sales do not work initially, but also being ready, willing, and able to pounce again once any short-term news rally fizzles out. We are also skeptical that any Fiscal Cliff agreement that is worked out in the Senate would have much of a chance passing in the House.

We expect to be in and out of all these of these names as we test the short side here ourselves, as a matter of fair disclosure.

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