Chart Talk

Part of the difficulty in approaching a one-directional market is that if you miss the initial move, you might have trouble finding places at which to get in.  As a technical trader who thrives on buying support and selling resistance, once the horse has charged out of the barn, so to speak, I'm not predisposed to try and lasso up and reign that sucker in. Such was my fate on Wednesday, March 3rd, as a market that sold off heavily on the open, never provided the type of rally that I count on in order to confidently get short. I was wise the previous day in sensing a sell off was in the works, and I made several short sales towards the end of the day that worked out well for me, including a highly profitable one in Facebook (FB), that I discussed in my previous post . But, did I take home any short positions that would have automatically put me on the right side of the market the following day? Absolutely not. I may be smart after all, but I never said I was that smart! What then ...

Considering the possibility that the prolonged rally in the overall market may be getting a little long in the tooth, we must look to sell strength in stocks when the opportunity presents itself. A big mover such as Facebook (FB) provides the perfect opportunity, especially with an easy stop, and backed up by a strong formation. Examining the 5-minute FB chart from Tuesday, March 2nd, the short-term top it put in over the past few days at around 267 is clear to see. Corresponding with an afternoon rally in the major indices, FB traded up to 266; a $3 rise from the intraday low that it sold down to after the morning high of 266.71. The Trade: Taking three things into account: 1). the multi-day top in FB at 267; 2). that FB spent almost an hour hovering just below 266 after a mid-day rally without breaking above; and 3). a simultaneous hearty rally into resistance in the major indices, I sold short 700 shares of FB at 265.81, with a stop right above 266. The Rationale: I must admit that...