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.
RPC ( RES), which offers services to oil and gas companies, missed out on much of the gusher in the oil patch last year. The company's technical and support services are used in various aspects of the drilling and production process, and given the demand for energy and energy-related shares in 2006, this stock should have fared better. But after the March 2006 spike that took shares from $14 to above $22, the stock sank to a low under $12 in October. Since then, a potentially bearish double-top formation has been forming. The pattern is developing between the 200-period moving average, a hidden support level, at $15.30 and resistance just above $18. I would expect that the support level at the 200-period moving average to hold and create a reversal. And in fact, this did occur in January 2007 as price moved from $15.30 to $18. However, the resulting failure of the shares off of $18 resistance led to a retest of the 200-period moving average support and shows that distribution pressure is outweighing accumulation pressure. A close under the 200-period moving average level should confirm that a downtrend continuation signal is a higher probability than a move higher. The ideal entry strategy for this setup would be to first see the share price move back up above $16, say to $16.30. The stop-loss should be set at $18, where the stock has been topping out. This strategy would offer $1.70 in risk, and the first profit target would be $14.60 to satisfy the 1-to-1 reward/risk ratio. Partial profits could be taken there.
| RPC (RES) -- Daily |
The final target would be placed 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 If the price of the stock should close under $15.25 without first offering an entry, this trade setup is no longer valid.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 of RPC closed at $15.51 Friday.
Updates on Previous PicksAlliance Resource Partners ( ARLP - Get Report) did not set up
The ideal entry strategy for short exposure would be to see an entry at $35.75 with a stop at $37.75. This offers $2 in risk. The first profit target would be placed 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.If the stock price should move under $33.50 without first offering an entry, this trade setup is no longer valid. Shares closed at $35.16 Friday. Intermec ( IN) set up