A Short Play in Shaw Group

In light of last Friday's Fed-induced rally, many stocks are showing new signs of life.

A number of names ramped more than 5% on Friday and closed near the high of the day. This type of afternoon strength tends to indicate more follow-through in the days ahead.

But I take the opposite approach when looking for shorts. When a stock rallies along with the rest of the market during the morning, but fades in the afternoon, that's a pretty good indication that buying interest is tepid.

One stock that appears to fit that bill is Shaw Group(SGR Quote - Cramer on SGR - Stock Picks).

Last Thursday, this engineering and construction company announced that it had been awarded a $50 million contract for engineering services in China.

So how did the stock react? It fell more than 5%.

One of the hallmark signs of a weak stock is when it falls on good news. That's what's happening with Shaw Group.

Furthermore, Friday's rally in sympathy with the rest of the market was not sustained. While the stock closed nearly 2.5% above its previous close, it failed to push above the 50-day moving average.

Let's take a look.

Shaw Group (SGR) -- Daily

Notice how the stock fell below short-term support at $50 last week. At the same time, there is a break of the 50-day moving average. Friday's rally was not sustainable, and the stock closed near the low of the day.

Still, Shaw Group looks a bit oversold, so you should be patient when looking to establish this short trade. I'd suggest waiting for the stock to retest the break of support and look for a short entry of around $48.

Once that short entry is taken, try putting a buy-stop just above $50, at around $50.25. A reasonable downside target for this short is $37.50.

« Previous Page

1 2

Next Page »