A rather steep market drop is usually followed by a sharp bounce. Yesterday's bounce was not that sharp, but we can see below that one hour before the close, the weekly short ideas had lost more than 1%. Also, no interesting short ideas were forthcoming from the daily list: everything was below the lower shorting range.
WARNING: BELOW IS THE YESTERDAY 14:45 SNAPSHOT
Fortunately, I was able to load up on SDS at the first sign of 20DMF weakness early in the day.
This trade is now down, but not by much, and I plan to increase the SDS position on more weakness.
It is interesting to compare today's short ideas with those of yesterday.
Yesterday, at 14:45, the price of CTXS was 66.79. This morning, in pre-market it is already 57.94. With CTXS' poor overnight earnings, we can see that stocks in the same sector are not doing nicely: VMW will open at 76.43 from 78.88 at 14:55 and FFIV looks also to open on a down-gap.
There are basically two ways to short a stock:
A. Catching the falling Knife
The first is to catch the falling knife and hope for the best. This can work if you are agile and not afraid of a little blood (8% stop loss levels are necessary instead of 3% or 5%.) This could be the case for FFIV and VMW. CTXS is already out of reach.
Catching falling knives looks difficult, but it can be a profitable strategy. I might venture into FFIV/VMW even out of their shorting range, but on half of a normal position.
B. Shorting a bounce
This is an easier strategy, because the volatility inherent to a short market should play in your favor.
Consider ASGN: this stock is "breaking down," but has bounced off a support level, and in theory could eventually bounce up to its 50MA.
We can see that its strong uptrend is now broken ($ mark below the LB level on the Supply chart.)
However, long-term holders could decide to buy more and push prices back to the 50MA. Since volatility has increased in the past days, if you short on an intraday bounce to the 50MA, then volatility will work in your favor as the price could easily fall back from the 50MA resistance using the fear associated with the previous down-move.
If I were an options trader, I would sell calls on the 50MA to pocket the premium. Unfortunately, ASGN's daily trading volume is low and hence options maybe not be easily available.
NWSA could also be a short candidate today, but also on a bounce to the 50MA. The downside target could be the 200MA, which in this case is relatively close. This is a "safe" trade for a short, but the potential profit is not very attractive.
This does not leave us with many good trading candidates on the short side.
My plan is to see how the market evolves during the day, monitor the strength of the possible bounce and mainly check the EV patterns of all the short candidates that enter into the short zone (by checking the blue color change on the daily table,) to see whether large players are pushing prices up.
Regarding the daily ideas below, you can see that I am 100% in cash (except for an SDS position, not shown here.) The SDS position is also psychological: I have some "skin in the game" and can be more prudent to open new short positions.
Finally, I will also keep an eye on the OB/OS level, because it is very close to oversold and could easily indicate a sustainable bounce. More about this in the daily comment.