Short the Established Downtrend in Force Protection

Shares have been in a steady decline since late May.
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Force Protection

(FRPT) - Get Report

is a dominant player in the armored vehicle industry. In light of the plethora of hot spots in the world, this is a good business to be in today.

The company has had the lion's share of the armored vehicle market, but that appears to be changing.'s

Melissa Davis has written some great articles on

Force Protection's troubles, though I have heard from one or two bulls who feel the company is getting unjustly smeared.

Now, there are always two sides to every argument, and after listening to the bulls and the bears, I'm going to use my usual tiebreaker -- the stock chart.

If you look at the daily chart of Force Protection, you'll see that the stock price has been cut by one-third since late May, steadily declining in a stair-step fashion. But the stock is now testing a critical level.

With its share price now down at $20, an obvious level of support, Force Protection could be at a bottom. The bulls could be making a stand right here, right now.

But if $20 fails to hold off the selling pressure, I believe the stock could fall another $3 before the next level of support comes into play.

If Force Protection falls below $20 down to $19.90 you might consider shorting this established downtrend. But because of the nature of this short idea, the stop needs to be fairly tight, just above yesterday's high of $21.19 -- let's say $21.25.

Assuming support is broken, you'll want to keep a tight leash on the position, and any strength that's sufficient to push the stock above yesterday's high is also a signal that the bulls are making a stand at $20. You don't want to be short.

Force Protection (FRPT) -- Daily

The downside target on this short is $17, right in the middle of the March consolidation level. Shares of Force Protection closed at $20.56 Wednesday.

Updates on Previous Picks

  • Arrow Electronics (ARW) - Get Report: The current stop remains at $39.65, and the downside price target is $35. Shares closed at $39 Wednesday.
  • Centex (CTX) : This stock remains on the Watch List, looking for a short entry at $39.90. Shares closed at $42.81 Wednesday.
  • D.R. Horton (DHI) - Get Report: The short entry was at $19.45. The price target is $16 and the current buy-stop is at $21.40, which remains unchanged. Shares closed at $19.20 Wednesday.
  • Mattel (MAT) - Get Report: The stock was shorted at $27.75. The short had been working until last week, when the adjusted stop of $26.10 was hit. So this position was closed out for a small profit.

At the time of publication, Fitzpatrick held no positions in the stocks mentioned, although holdings can change at any time.

Dan Fitzpatrick is the publisher of

, an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback;

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