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 and TheStreet.com readers.


Foot Locker ( FL), the athletic shoe retailer, appears on the radar this week: The stock price refused to participate at all during the broader market run-up in the fourth quarter of 2006. Relative weakness compared with the broader market is typically a good bearish sign that distribution pressure remains stronger than accumulation pressure.

The chart below also shows several bearish technical signals, starting in June 2006 when the price gapped up and was immediately rejected above $27 a share. The return to the $23-$25 range in August and September confirmed the rejection and created a lower high at $26 in late September.

A series of lower highs followed in November, at $25, and again in December, at $24. Now the stock price is basing near the lows set in May 2006 at $21.50.

Normally when a base forms near lows, volume is key. If sell-side volume shows a large increase but price holds support, it would mean that buyers are absorbing all the sell-side volume and are accumulating the stock. But I do not see this happening in Foot Locker.

Instead, the chart shows the volume contracting as Foot Locker's price bases near the lows. This typically indicates there is very little buying interest in the stock. If distribution pressure can take this stock price under $21.50, it's likely the stock will continue lower.

The ideal setup for this short trade would be to see Foot Locker's price break below $21.50 and then bounce back to $21.75 for the entry. The stop would be placed at $23.10, which would offer $1.35 in risk. The profit target would be $20.

Note, however, that if Foot Locker's price moves under $21.50 and breaks $21 without first offering an entry, this trade setup is no longer valid. Also, if the price moves up above $22.60 without first dropping below $21.50, the setup is no longer valid. Shares closed at $22.01 Monday.


Foot Locker (FL) -- Daily


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