Short Trader: AutoZone's Rolling Over

After a brief rally, the stock loses its traction and again heads south.
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After a volatile couple of weeks and a deeply oversold market that is now snapping back, it's tough to find a low-risk short trade. The problem is simply that most stocks have already been selling off.

However, after the strength Wednesday afternoon in the broader market, we want to look for those stocks that did not hold up very well.

One of those stocks was

AutoZone

(AZO) - Get Report

. The company is in the retail industry group, specializing in auto parts. But the entire group has been under some pressure lately after peaking at an all-time high in February.

For AutoZone, a recent lower high in its chart indicates the bulls have been losing steam and the stock is likely to roll over.

Let's take a look at the chart (below).

Notice how the 50-day moving average has been consistently below the share price. But the stock's early-March pullback briefly cut through that support level.

Now after a brief rally, the stock is once again rolling over. A fall back below the March low of $121.52 would indicate more downside in AutoZone.

So a prudent short entry is at $121.45. Once the short trade is open, I suggest putting a buy-stop right about $128.10. If the stock runs back up that high, you probably don't want to be short.

Shares of AutoZone closed at $124.32 Wednesday.

AutoZone (AZO) -- Daily

Updates on Previous Short Picks

  • CarMax (KMX) - Get Report: After rebounding last week, this short idea is working, and shares closed at $49.25 Wednesday. The current buy-stop is at $55.50; let's lower that to $54.10.
  • Continental Airlines (CAL) - Get Report: This one triggered last Friday with a cost basis of $37.95, and the buy-stop was set at $42. The stock closed at $36.62 Wednesday, so lower that stop to $38.10.
  • Microsoft (MSFT) - Get Report: This short pick is working well. The adjusted buy-stop at $28.65 should be lowered to $28.10. Microsoft closed at $27.40 Wednesday.
  • Netflix (NFLX) - Get Report This short is also working well. Last week, I suggested lowering the stop to $23.50 to lock in a break-even trade. Netflix shares closed at $21.11 Wednesday, so lower the stop again, to $22.10.
  • NutriSystem (NTRI) - Get Report: This short idea was closed out when the adjusted buy-stop at $47.75 was triggered last Friday.

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 StockMarketMentor.com, 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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