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.
The signals being transmitted by Intermec's ( IN) chart suggest the stock is falling into the hands of the bears. The company, which makes RFID (radio frequency identification) readers and barcode scanners, had a tough year in 2006. A close reading of its chart tells the tale. Intermec was a very volatile stock in 2006. After taking a $10 hit from January to June last year, the price moved back above $30. But then shares plunged again, creating a double-bottom low in October. Since then, Intermec's share price has climbed back up to hidden resistance that developed because of the downtrend line. That line also happens to be just below the 200-day moving average, making the resistance an even greater obstacle. What appears to be forming over the past six to seven months is a bearish head-and-shoulders technical pattern. The probability of lower prices increases after a head-and-shoulders pattern forms. The shoulders of this type of formation are usually created by weak reversals from support that form a lower high. In July, the reversal formed a lower low before the stock made its strong move back above $30. That strong move over $30 formed the head of the pattern. At that point, distribution pressure kicked in and led to the retest of the June-July lows. Now the right side of the shoulder appears to be forming. In late November, a lower high occurred as price retested the $26 level. The $26 level is the point from which the price gapped down in October to test the former lows under $22. As price again sought out this level, those who were long the stock from $26 were happy to sell close to break-even, creating distribution pressure again at $26. Finally, the lower high just above $24 in December shows buyers' lack of interest to take the price back above $26. If the stock continues to move lower, it will complete the right shoulder. Shares closed at $24.21 Friday. So the ideal setup for this short trade would be an entry at $24.25, with a stop at $26.25. This would offer $2 in risk. The first profit target would be $22.25, where half of the position could be closed to serve a 1-to-1 reward/risk ratio. The second profit target for the remainder of the position would be based on the February 2004 low at $19.50. However, if Intermec's price moves below $22.80 without first offering an entry, this trade setup is no longer valid.
| Intermec (IN) -- Daily |