The current market continues to confound the bears. When the market is in full-blown "buy" mode, it rarely pays to stand in its way, and it's important for traders to understand that short-selling is betting against the natural upward bias of the market.
Why is there an upward bias? There are two reasons:
First, the majority of money managers are "long only." They do not short stocks. Neither do most private traders. As such, most traders are predisposed to look for stocks to buy, not to sell.
Second, businesses are in business to make money. Yes, a new business venture will often lose money during its maturation process as it works to gain market share, develop new products and build customer loyalty. But over time, the business will begin paying for itself, with money left over for the owners and investors in the business.
Knowing why stocks generally go up enables us to understand what factors will make them go down. What happens when you own an established business that has been around for decades, but that business is consistently losing money? Moreover, the industry the business is in is on the decline, and so the industry itself is not doing well.
When you're in that situation, you look to sell your business for whatever you can -- even if it means taking less money than you paid for it.
That brings us to the
New York Times
. Print media is rapidly falling by the wayside, as evidenced by the fact you are reading this on your monitor. The New York Times Co. has been around for more than 100 years, but its earnings aren't exactly stellar.
Neither is its chart (below). Let's take a look.
You can see the volatility in this chart. But the one consistency seems to be the rising support trend line, which is currently at around $22.50. The Relative Strength Index (RSI), a momentum indicator, is in the middle of its channel, reflecting the ambiguous price action. (Remember, the RSI ranges from 0 to 100. A level around 70 or above indicates a stock may be overbought, and 30 or below indicates it may be oversold.)
Money flow, which shows a series of lower highs and lower lows, gives us a better look at the stock. This indicates that, on balance, money is flowing out of this stock.
New York Times (NYT) -- Daily
For this short idea, I've selected a couple of alternative entries. First, if the stock rallies back to $24.50, a short entry can be taken, with a stop at $25.50. But if the stock instead falls below support to around $22.45, a short entry can be taken with a buy-stop placed at around $24.10. The shares closed at $23.51 Wednesday.
The price target on the trade is around $17.50, although it will likely take the stock a while to fall that low.
Updates on Previous Picks
- DRS Technologies (DRS) : The short entry for this pick was $51.25, and the adjusted stop is at $52.20. No change here. Shares of DRS closed at $50.92 Wednesday.
- DuPont (DD) - Get Report: The cost basis for this short idea was $50.10, with a buy-stop at $52.10. The stock has not been moving around much and certainly has not participated much in this strong market. However, the chemical industry group has been strong, so it's best to play some defense. So lower the buy-stop to $51.05. If the stock moves that high, you don't want to stand in the way. Shares of DuPont closed at $49.97 Wednesday.
- Intevac (IVAC) - Get Report, which was last week's idea, has a cost basis of $23.60. The buy stop is $25.05, where it can remain. The stock closed at $23.25 Wednesday.
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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