Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Saturday, January 08, 2005

Is NGPS a Short Candidate?

…I was asked if NGPS had become short sale because it had reached overbought levels in the past month. As we can all see, NGPS was down 36.49% on the largest weekly volume of all time. This does not mean we sell our shares and immediately short the stock. Why?

A stock, in my view, is never a short sell until is below the 50-day moving average (at least) and even more so when it drops below the 200-day moving average. The first break below the 50-day is still not the ideal time to short a stock. The stock must try to break back above this line and fail one or two times. At this point, based on charts, an ideal short position can be opened.

I will look in my files for a short sell chart that I have used in the past. I will also look for a current short sell chart pattern in today’s market. I will post a case study this weekend highlighting the characteristics of a prime short candidate.

As for NGPS, it's still above the 50 and 200 day moving averages. A stock does not automatically become a short sell because it becomes overbought. This is a very common misconception to most investors.

I don't recommend shorting stocks until you have mastered years of making profits buying and selling regular positions. It's hard enough to do just that consistently.

Piranha

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