Before we get to today's short idea, let's talk a bit about owning your mistakes.

A while back I featured Accredited Home Lenders ( LEND) as a short idea, completely forgetting that the company had entered into an agreement with Lone Star to be acquired. Almost immediately, my email inbox started filling up with reminders (most of them were nice ... but a few were not) about the deal.

So I spent a few hours returning emails and fessing up to the fact that I had just blown it. There is no way around it -- I just didn't do my homework.

Now that a few weeks have passed, the stock has declined significantly because there are questions about the deal.

Well, I'm sticking to my guns. Irrespective of what the stock is doing, I still blew the analysis. I bring this up to make one simple point: Profits are never guaranteed in trading, but you certainly help your cause by doing enough work prior to trading.

If you cut corners, there is always the chance that you'll still make money even though you don't deserve to. If this happens to you, just take the money quietly and be thankful that you dodged a bullet.

But never start believing that you knew more than you did.

We've all heard the saying, "It's better to be lucky than good." When it comes to trading, I'd rather be good because that's repeatable. Luck is not.

Now, let's discuss today's short idea, RadioShack ( RSH). This stock was consolidating during June, but really started correcting in early July. Now the stock is ready for the next leg down. Let's take a look.


RadioShack (RSH) -- Daily


Notice how the stock has been holding at about $30, each day closing at or just above $30. But Wednesday saw a close below this key support level on slightly higher-than-average volume. RSI is close to being oversold, but is still above 30.

You should consider a short if the stock falls down to around $29.25. Once the short position is opened at $29.25, then put a fairly tight buy-stop at around $30.90. The initial downside target for this trade is $25. Shares of RadioShack closed at $29.41 Wednesday.

Updates on Previous Picks

  • Centex (CTX): This short trade is just getting started, with a cost basis of $39.90. There's still a loose stop at $51, with a price target of $25. Obviously, this is a long-term short idea, so you have to be patient. Shares closed at $39.51 Wednesday.
  • D.R. Horton (DHI): The cost basis for this one is $19.45, with a price target of $16. This stock is moving in the right direction, with a stop at $21.40. Lower that stop to $19.75 to cut the risk down to a reasonable level. Shares closed at $17.48 Wednesday.
  • Force Protection (FRPT): The short entry for this one was at $19.90, with a target at $17. That target was hit this week, so this short trade was closed out for a quick profit. The stock still looks like it has more downside ahead, but a target is a target, so let's call it a winner and move on.
  • Arrow Electronics (ARW): This short trade was opened in early June at $40.90. The stock has been gradually moving lower, and the most recent adjusted stop was at $39.65. That stop was hit last week, so this trade was closed out for a small profit.

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 StockMarketMentor.com, 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; click here to send him an email.