• GMCR - Dec 01 201420141201
  • ILMN - Dec 02 201420141202
  • TSLA - Sep 23 201420140923

Short Setups

Stocks in a bearish pattern formation that are poised to break-down and provide an objective short entry. Also included in this category are stocks that may have already triggered a short entry but still offer an objective entry or add-on to the position at or near current levels such as a bounce back to a key resistance level.

Dec 022014

ILMN (Illumina Inc) offers an aggressive short entry while near the top of this large rising wedge pattern with a more conservative/conventional entry or add-on to come on a break below the bottom of the wedge. Suggested stops based on a 3:1 R/R to one’s preferred target(s). Barring a large gap down, ILMN will be added as an Active Long Trade at the open tomorrow.

The large rising wedge pattern on the daily (first) chart below can also been viewed on the weekly (second) chart along with the percentage drops that followed all other similar weekly divergent tops over the last decade (39-68% corrections). Two of those three previous corrections bear markets in ILMN occurred while the US broad markets were solidly entrenched in bull markets (2006 & 2011), highlighting the fact that money can be made shorting the right stocks at the right time in a bull market. My plan for this trade is to take a fractional position here near the top of the pattern, adding to the position if & when prices break below the bottom of the wedge although I may also decide to cover my position on the initial tag of the uptrend line (then shorting a full position on a break below the pattern).

Of course the markets are dynamic and as such, so are my trading plans. T2 at 136.10, which is set just above the 134 horizontal, is the current preferred swing target at this time. Should prices ultimately make a solid break below the 127 support level (not drawn on this chart), especially if the broad market were to be in a confirmed downtrend at the time, the chances would be good for a back-fill of the thin zone that runs from 134 down to the 86 level.

Dec 012014
GMCR daily Dec 1st

GMCR daily Dec 1st

GMCR (Keurig Green Mountain Inc) offers an objective short entry here around the 140 level following the recent long-term uptrend line break & the more recent bear-flagging price action. T3 is both the current preferred & final target at this time. Suggested stop over 155 or lower (if only targeting T1 or T2).

GMCR was added as a short trade setup on Sept 25th with an pending entry based on a break below the 125.35 level. The stock has remained above that level since then but just recently went on to breakdown below the 2+ year primary uptrend line and has set up in what appears to be a bear flag pattern over the last several trading session. With the GMCR appearing to break down from that flag pattern (best viewed on the 60 minute time frame) by moving impulsive lower today, the stock offers an objective short entry around current levels. Please note that the price targets have been modified since the previous short entry was posted a couple of months ago. Updated daily chart shown.

Click here to view the live, annotated daily chart of GMCR.

Sep 232014
TSLA daily Sept 23rd

TSLA daily Sept 23rd

My notes & thoughts on TSLA virtually mirror the previous short trade on TSLA, just over a year ago today (which, fortunately, was the only other time I shorted this beast of a stock). TSLA was added as a short entry back then on Sept 13th, 2013 at 162.55 and went on to hit the top of the target zone for a 17.2% gain less than 2 months later and continued on to the bottom of the target zone for a 22% gain before reversing & continuing the bubble uptrend in the automaker.

The basis for this short trade, as back then, is the fact that TSLA has just recently broken down from a very large bearish rising wedge pattern, complete with bearish divergences on both the MACD & RSI. Also compare the short interest chart on this current daily chart with the short interest chart on the original daily chart from that previous post (click on the blue hyperlink above to open in a new window). As back then, the precipitous drop in short interest was undoubtedly a large driver in the sharp price increase in TSLA since the July 2013 lows as the short interest peak shortly after that and has continue to fall roughly inline with rise in the stock price.

As with that previous short trade, I have a target or support zone that I’m targeting on the stock although my current preference at this time is to cover just above the top of the zone, assuming that this trade pans out. Therefore, the sole & final target at this time T1 at 206.20. With TSLA currently backtesting the wedge from below following yesterday’s breakdown, the stock is offering a very objective short entry with a suggested stop over 265 (a 3:1 R/R) or lower.