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5 Trades to Profit From the Selloff

Alcatel-Lucent

The exact opposite setup is taking place in shares of Alcatel-Lucent (ALU), the American Depositary Receipt of the Paris-based communications firm. Not surprisingly, ALU is getting sold off hard this morning as the Euro Stoxx 50 Index sits on 4.4% losses this morning. In this case, the move is providing a short-side trigger in ALU.

Alcatel-Lucent is forming a bearish descending triangle right now. This formation is identified by horizontal support and downtrending resistance -- a combination that indicates bearish directional bias among this stock's market participants. Our support level is currently $3. That level is being testing this morning.

A confirmed breakdown below $3 is the signal to pull the trigger on a short of ALU. Traders looking for a leveraged way to trade the breakdown might want to consider some of ALU's December in-the-money puts -- they're looking like a good bargain right now. If nothing else, a triggered ALU trade will provide a decent hedge for investors who are net long. Of course, it's critical to wait for the breakdown to get confirmed before selling short or buying puts on this name.

Consider a protective stop just above the upper resistance line at $3.40.

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