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SSS - Thoughts on the Short Side for Thursday, October 27, 2011

With the Market Direction Model going to a buy signal and the Europeans deciding to liquify and grease the wheels, there is no reason to fight the tide. If you are stopped out, depending on exactly where your stops are, on any short position, then you must heed your stops. The market has been in a bifurcated state, but even successful short trades like GMCR have run their course with respect to price objectives and percentage profit objectives. In particular, GMCR undercut the 63.05 low in its consolidation that was formed during April of this year, so that is a logical point from which the stock could rally, which we might expect could carry up to the 200-dma. If you were using that as a trailing stop, we would not wait for the stock to get there.

In fact, we are testing a long position in GMCR to gauge its "buoyancy" as a rally up to the 200-dma might be a playable short-term trade based on the "logic" of the short-sale set-up in and the 60.05 undercut in terms of setting up a logical rally up to the 200-dma as short-sellers swarm the stock. We were particularly interested to hear hedge fund manager Whitney Tilson go on CNBC yesterday to babble about his new short position in GMCR. That might mark a short-term low in GMCR, who knows! For now we tend to think the heart is out of the watermelon in GMCR, are testing it as a potential short-term trade up to the 200-dma, and otherwise would not be trying to fight the market by shorting into this rally for now. Stay tuned. 

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