Seek Potential Decliners When Bulls Start Faltering

Qualcomm

There are many reasons why recent action makes Qualcomm an excellent short. Because it's a beloved stock among active traders, you'll need to strap on your seatbelt if you decide to short it. But absent any positive catalyst such as global acceptance of CDMA and universal rejection of GSM, a multitude of sellers will be waiting to give you all the stock you want for the foreseeable future.

AutoZone

AutoZone is trending higher, making a series of higher highs and higher lows. There's everything to like about this stock: It has gained more than 30% in about 10 weeks, remarkable in this market. But for you nimble, contrary thinkers, AutoZone might be good for a little "short off the top." The relative strength index, or RSI, has failed at prior resistance, and money flow made a lower high. Again, though, this is really only a potential short for the quick and the nimble -- maybe even just a daytrade.

The nice thing about AutoZone is that it presents both a long and a short opportunity; only the time frame differs. If you're more patient, watch the stock for a bounce off the 200-day moving average. By the time it reaches that level, the 200-day average and the middle Bollinger Band will probably be at similar levels. That may be where the current pullback will find support. If you look at the chart closely, you can see a complex inverse head-and-shoulders forming. I'm not one to put a lot of faith in these complex patterns, though, because they remind me of a Rorschach test, where you see whatever you want to.

Pan American Silver

Pan American Silver is my obligatory long trade. Silver is one commodity that tends to exhibit seasonal tendencies, rising in the second quarter of the year. On a weekly chart of this stock, you can see a repeated tendency to rise during the second quarter.

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Dan Fitzpatrick is a freelance writer who trades for his own account. His columns focus on quantitative strategies for trading and investing. Fitzpatrick is a member of the Market Technicians Association and authors The Stock Market Mentor, a newsletter focusing on the proper use of technical analysis for trading and investing. At time of publication, Fitzpatrick held no position in any stocks mentioned, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Fitzpatrick cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to [e-mail].