Editor's note: Formerly, Chris Schumacher's short trading ideas were available only to subscribers to TheStreet.com's Short Advisor. Now these picks are being offered to RealMoney.com and TheStreet.com readers.
( NRMX) has hit the bears' radar screen because of the continuing bearish technical formation of a head-and-shoulders pattern.
The company develops drugs primarily for the treatment of neurological diseases, including Alzheimer's.
The main risk inherent in drug companies is Food and Drug Administration approval of the drugs in their pipeline. News of an approval or rejection can move the stock price in either direction in a fast and vertical fashion. Therefore, I would recommend using less capital to lower your risk in a setup such as this one.
Neurochem's head-and-shoulders pattern has formed in the price range of $15 to $20 a share, with the right side of the shoulder forming in a tighter range of $15 to $18.75. The right side of the shoulder is also forming a downtrend within the range.
The company reported earnings last week, but the shares did not react much to the news. With the stock forming the right side of the shoulder and little buy-side momentum over the past two months, the shares have a higher probability of declining to new lows.
The ideal entry for this setup would be at $17.50, with a stop at $20. This offers $2.50 in risk.
The first profit target should be placed at $15 to satisfy the 1-to-1 reward/risk ratio. The second profit target should be placed at $12.50, where full profits could be taken.
If the price of the stock should close under $15 without first offering an entry, this trade setup is no longer valid.
Shares of Neurochem closed at $16.29 Monday.
Neurochem (NRMX) -- Daily
Updates on Previous Picks
Alliance Resource Partners set up with an entry at $35.75 last week. The stop is at $37.75, offering $2 in risk. The first profit target is at $33.75, and a final profit target will be determined if the current support at $33.50 fails to hold as support on a closing basis. Shares closed at $35.64 Monday.
Intermec set up with an entry at $24.36. The stop is at $26.25, which offers about $2 in risk. The first profit target is at $22.25, where half of the position could be closed to serve the 1-to-1 reward/risk ratio. The final profit target would be based on the February 2004 low at $19.50. Shares closed at $23.69 Monday.
PetMed Express set up with an entry at $12.80. The stop at $14.25 offers $1.45 in risk. The first profit target is at $11.35 to satisfy the 1-to-1 reward/risk ratio. Partial or full profits could be taken there. If partial profits are taken, the stop can be lowered to $13, and the final profit target would be the September lows of $9.50. Shares closed at $12.79 Monday.
Regal-Beloit did not set up last week. The ideal entry is at $50, and the stop would be placed at $52.25. The first profit target, where partial profits can be taken, would be at $47.75 to satisfy the 1-to-1 reward/risk ratio. The second profit would depend on how well the 200-period moving average level holds as support. If the stock price can close below $46.50, the probability of a downtrend continuation signal becomes stronger, and the ideal exit strategy would be between $43 and $43.50 a share on the rest of the position.
If the stock price closes under $46 first without offering an entry, this trade setup is no longer valid. Shares closed at $47.01 Monday.
RPC did not set up last week. The ideal entry would be an entry at $16.30, with a stop-loss of $18. This offers $1.70 in risk. The first profit target would be placed at $14.60 to satisfy the 1-to-1 reward/risk ratio. Partial profits could be taken there. The final target would be at $12, where the rest of the remaining position could be closed for full profits.
If the price of the stock should close under $15.25 without first offering an entry, this trade setup is no longer valid. Shares closed at $15.63 Monday.
At the time of publication, Schumacher held no positions in the stocks mentioned, although holdings can change at any time.
Chris Schumacher is a financial trader, speaker, writer, co-author of
Techniques of Tape Reading
and and contributor to
. He has delivered seminars throughout the U.S. and is a featured speaker at trading expos. He is a graduate of Ohio State University and has served as a guest lecturer at Ohio State University's Fisher College of Business as well as the Center for Entrepreneurship. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback;
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