Seize the Chance to Short Winnebago

Motor home/recreation vehicle manufacturer Winnebago (WGO) has not had a stellar 2007. Its stock price has plummeted from about $35 in February to just under $26 this summer.

For Midwesterners like me, putting this company's stock on a short trade watch list is something of sacrilege. Many of us have fond memories of our youth when we would pile our family and our friends -- and maybe even our friends' families -- into one of these homes on wheels and head off to the nearest camp site or amusement park. How I could dare to talk ill of the technical chart of this name will be something of a blasphemy to many, especially my father, I'm sure, who relishes such memories.

As the price of Winnebago's stock moved lower and lower toward the $26 level, volume picked up slowly until it eventually peaked in the month of August.

Since then, volatility has been strong, as shares moved from $26 to $31 and back to $27. Then, in this past week, the price spiked one more time back to $31.

Looking at the chart below, you can see the strong resistance since June at $31. Each time the stock tries to reach this level and sustain a move above it, distribution pressure hammers the bids and sends the stock lower.

Since June, the stock has tried to move over this level five distinct times.

I expect a break of this resistance to finally occur and offer an entry point that would be ideal for a short exposure setup.

If the stock's price can push above $31, then traders who are already short Winnebago should begin covering their positions. This would create some further buy-side pressure on the stock and send it toward the 200-period moving average. If this occurs, looking for entry exposure there would help set up a good reward/risk ratio. An entry at $32.40 would require a stop at $34.10, for a risk of $1.70.

The first profit target would be placed at $30.70, with a final profit target somewhere under $28. This will be determined depending on whether the price behaves near $30.70.

If the stock price should move under $29.25 without offering an entry, then this trade setup is no longer valid. Shares closed at $29.25 Monday.


Winnebago (WGO) -- Daily


Update on a Current Pick

LaBranche ( LAB) unfortunately closed under $6 without first offering an entry at $8. So this trade setup is no longer valid.

At the time of publication, Schumacher had no positions in stocks mentioned, although holdings can change at any time.

Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.

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