This column was originally published on RealMoney on Aug. 8 at 1:00 p.m. EDT. It's being republished as a bonus for readers.

Short sale opportunities are setting up very well these days. The erratic bounce off the July lows has eased oversold technical readings and lifted a wide range of beaten-down stocks into major resistance levels.

Let's look at five stocks that will be attractive candidates for short positions once the

Federal Reserve

gets done shaking the market tree.

I'll watch stocks for weeks after big gaps down to see if they come back and test key resistance levels. Most of today's picks come from the list I keep for that purpose.

While these issues have bottomed out and recovered lost ground, they're now sitting near price levels where the initial selloffs began. That often marks the best location to sell short.

Place stop losses above the highs of the countertrend bounce. Keep them loose to avoid one last squeeze or shakeout before the downtrend resumes.

Realize the low of the original breakdown will offer support as these stocks fall; decide if you want to take profits there or hold on for the next selling wave.

Arris Group

(ARRS) - Get Report

sold off from a three-month topping pattern in May and dropped into its 200-day moving average. It then chopped sideways until late July, when it sold off on heavy volume, breaking long-term support. The stock finally bounced at $9.25 and rallied back to the high of the breakdown bar last week.

Friday's bearish outside bar suggests the downtrend will resume from here and carry the stock through the recovery low. Any further bounce should not exceed $11.35, the current level of the 200-day average broken in the initial selloff. Once the stock breaks the last low, the decline might carry all the way down to the October 2005 low at $7.12. (See chart below.)



broke down from a nine-month topping pattern in July, following its poorly received earnings release. New resistance between $10 and $10.25 should not be exceeded before the stock breaks through the recent low at $8.85. The stock is still grinding higher in a countertrend rally, so sit on your hands until the best short entry sets up.

The two-week bounce has evolved into a bear flag pattern. This marks relatively narrow support and resistance levels that short sellers can use to tie their entries. Any breakdown below flag support should trigger a fresh sell signal and increase downside momentum. That's the time to get climb aboard. (See chart below.)

Citrix Systems

(CTXS) - Get Report

has been moving lower in a series of sharp waves since topping out at $45.50 in May. The second wave started in early July, peaking with a high-volume gap down about two weeks later. The stock has been recovering since that time, but the pattern predicts one last selling wave to flush out remaining buyers.

The size of the downtrend suggests this short play has considerable profit potential, with the price eventually dropping into the October gap near $25. So what's the best time to sell short? Although it has been ticking lower recently, watch for a quick spike that exceeds the last recovery high. A failure there should start a breakdown.

Red Hat

( RHAT) has a loyal cult following that felt the pain after the stock sold off on high volume in late June. The gap down broke a five-month topping pattern, with strong support at $25. The stock bounced quickly after the selloff and has been moving sideways since that time. Unfortunately, this feeble recovery attempt should fail soon.

The stock isn't near a good short entry price right now, so wait until it rallies back to resistance or breaks the selloff low. Accumulation has hardly budged during the recent consolidation phase, while longer-term relative strength indicators continue to roll over. These bearish divergences predict the selloff low at $21 will be tested and broken soon.


(IVAC) - Get Report

hit an all-time high in April and pulled back. That healthy correction gathered downside momentum until the stock reached the 200-day moving average in June and finally bounced. The recovery failed halfway back to the old high, dropping into the support level at which it broke down after the company's Aug. 1 earnings release

Notice how it shot up and filled the gap on the breakdown day. Look for another spike that tries to exceed that high. That move should fail and set up supportive conditions for a test of the breakdown low at $16.50. Short sellers can enter positions at gap resistance or wait for the selloff through that number.

At the time of publication, Farley held none of the issues mentioned, although positions can change at any time.

Alan Farley is a professional trader and author of

The Master Swing Trader

. Farley also runs a Web site called, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback;

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