Profit From the Pain

I would stand aside right here, as the stock is sitting on short-term support. But any break lower suggests the stock will test $20 again before taking another shot at higher prices.

J.P. Morgan Chase (JPM - commentary - Cramer's Take) broke out of a six-month downward trendline for three sessions before gapping back below the line. This failed breakout offers a dependable signal for short-sellers to step in and ride the stock to lower levels.

J.P. Morgan was never able to reach its August high in the recent move. This indicates that the decline is still very much intact, and the stock might even break its October low.

Serologicals (SERO - commentary - Cramer's Take) gapped down hard in mid-October. It rallied and recovered about 62% of its decline in the last month, but on-balance volume hasn't budged.

The stock is now weakening and setting up nicely to resume its selloff, and retest the low at $7.32. But this short sale isn't quite ripe yet, because indicators suggest a couple of spikes higher before a new decline can take hold. So what's the prognosis for this biotech stock? There's little support under the current price once it rolls over, and it could go down very hard.

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Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. At the time of publication, Farley did not have any positions in any of the stocks mentioned in this article, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback and invites you to send it to [e-mail].. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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