With the general market now exhibiting a
, it's time to revisit some of the short ideas we have posted over the last month or two. One of those ideas was to short the
Semiconductor HOLDRs ETF
once it had finished the AB=CD pattern we had
The AB=CD pattern completed slightly higher than expected, and since then the ETF has sold off rapidly. The possibility of a good trade still exists, however, if a retest of the breakdown point occurs.
Here's the daily chart showing the selloff since the top tick.
Notice the heavy volume as prices broke below support at $26.50. That area now has significant resistance because you have more than a month of buyers stuck at higher prices. They become your supply line.
The first target is $25 on this time frame, with the eventual target of $23.50. Do realize that SMH, like many of the charts you see now, has confirmed a trend change. We are now sideways confirmed, but a break of the next lower swing point will turn it into confirmed bearish.
Here's the intermediate time frame.
Here you can see the support and resistance points clearly.
You can also see the huge volume off the top, which is never a good sign. Historically, patterns like these don't offer great short entry points. They take the buyers deep and never give them much of a chance to escape. That looks to be the way this is setting up.
My suspicion is that a short sale around $26.20 to $26.40 is probably the best entry price you will get now. With reward likely all the way back to $21 to $22, and risk at $27.80 or so, it's a good reward-to-risk setup.
I will look to sell short some SMH now that it is on my short-sale screen once more. Unfortunately, like many folks, I let it slip off my radar screen at the highs.
We may still get the trade setup, though. Until next time, keep trading the charts!
At the time of publication, Little had no position in the security mentioned, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
, a free educational site for traders and investors. He has been featured in numerous publications and is the author of
His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.