{"id":4235,"date":"2014-10-14T08:05:29","date_gmt":"2014-10-14T12:05:29","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=4235"},"modified":"2022-04-06T15:05:03","modified_gmt":"2022-04-06T19:05:03","slug":"trading-weak-market","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/trading-weak-market\/","title":{"rendered":"How To Profit From Trading In A Weakening Stock Market"},"content":{"rendered":"<figure id=\"attachment_4238\" aria-describedby=\"caption-attachment-4238\" style=\"width: 209px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-4238\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2014\/10\/short-selling.jpg\" alt=\"Short selling stocks\" width=\"209\" height=\"200\" title=\"\"><figcaption id=\"caption-attachment-4238\" class=\"wp-caption-text\">Image courtesy of ehow.com<\/figcaption><\/figure>\n<p>After languishing\u00a0in &#8220;neutral&#8221; mode since late September, our proprietary <a title=\"Overview of our market timing system\" href=\"https:\/\/www.morpheustrading.com\/blog\/market-timing\" target=\"_blank\" rel=\"noopener\">market timing system<\/a> triggered a fresh &#8220;sell&#8221; signal to equity swing traders on October 10.<\/p>\n<p>Accordingly, we immediately closed out existing long positions and are no longer to stalking the buy side of the stock market for new trade entries.<\/p>\n<p>Moreover, last week&#8217;s\u00a0rule-based shift to &#8220;sell&#8221; mode, the first in more than six months, means we are now free to begin <strong>looking for potential short selling opportunities<\/strong> as well (<a title=\"Basics of short selling\" href=\"https:\/\/www.ehow.com\/info_8070192_short-selling-stocks-explained.html\" target=\"_blank\" rel=\"noopener\">here<\/a> is\u00a0a basic primer on short selling).<\/p>\n<p>While the long-term &#8220;buy and hold&#8221; investors thrive on\u00a0strong uptrends in the market, a huge benefit of\u00a0momentum trend trading when the going gets rough is the ability to profit on\u00a0<em>both<\/em> sides of the market (long and short).<\/p>\n<p>Keep on\u00a0reading to understand why the long side of the market has now become quite risky, as well as to learn a specific chart pattern that will\u00a0help you find the best stocks to sell short\u00a0in a weak market (I will even show you a stock\u00a0that may be actionable for short entry\u00a0in the coming weeks).<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/trading-weak-market\/#No_Support_In_Times_Of_Need\" >No Support In Times Of Need<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/trading-weak-market\/#_Consolidation_%E2%80%93_Why_It_Can_Be_Bullish_OR_Bearish\" >\u00a0Consolidation &#8211; Why It Can Be Bullish OR Bearish<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/trading-weak-market\/#Drive_This_Short_Home\" >Drive This Short Home<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/trading-weak-market\/#Cash_%E2%80%93_Still_King\" >Cash &#8211; Still King<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"No_Support_In_Times_Of_Need\"><\/span>No Support In Times Of Need<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In our daily live trading room (included with <a title=\"The Wagner Daily\" href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\"><em>The Wagner Daily<\/em><\/a>\u00a0service),\u00a0we have recently been explaining to subscribers how quickly\u00a0key technical support levels can become useless when broad market conditions turn ugly.<\/p>\n<p>When a clear market uptrend is in place and market volatility is smooth and steady, a pullback to the 50-day or 200-day moving averages typically presents a low-risk buy entry point in a strong stock.<\/p>\n<p>However,<strong> that play goes out the window when the market cracks<\/strong> and volatility picks up.<\/p>\n<p>A great example of just how ineffective major moving averages when the bulls rush to the exit door can be seen on the\u00a0daily chart of Charles Schwab \u00a0($SCHW) below.<\/p>\n<p>Notice how the price crashed through the 200-day moving average, which is typically a &#8220;line in the sand&#8221; as a long-term indicator of trend:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/141014SCHW.png\" alt=\"$SCHW NO SUPPORT \" title=\"\"><\/p>\n<p>Since roughly 80% of stocks follow the dominant trend of the main stock market indexes, it is a foolish move to search for a diamond in the rough (that&#8217;s why our timing model exists).<\/p>\n<p>Now that the market has convincingly cracked, US equities could be in trouble for quite some time (but remember that <em>anything<\/em> can happen in a free market environment).<\/p>\n<h2><span class=\"ez-toc-section\" id=\"_Consolidation_%E2%80%93_Why_It_Can_Be_Bullish_OR_Bearish\"><\/span>\u00a0Consolidation &#8211; Why It Can Be Bullish OR Bearish<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In uptrending markets, the Morpheus trading system focuses on buying stocks as they break out above bases of consolidation near the highs.<\/p>\n<p>The longer and tighter the price action of a bullish\u00a0base, the more powerful the upside breakout tends to be.<\/p>\n<p>But even on the short side of the market, we also seek chart patterns that exhibit tight periods of consolidation, albeit\u00a0only\u00a0those that form<em> near the lows of a recent decline.<\/em><\/p>\n<p>One such bearish pattern forms when a stock suffers a nasty plunge from all-time highs, such as a <strong>quick\u00a0drop of 30%-50%<\/strong> on heavy volume, then consolidates near those lows for 4 to 6 weeks.<\/p>\n<p>When a stock undergoes this type of price action in a weak market, particularly if the stock was a former leader, it often presents <strong>a rather profitable opportunity<\/strong> for our subscribers who are prepared to bring home the dosh in both uptrending\u00a0<em>and<\/em> downtrending markets.<\/p>\n<p>A great example of the type of breakdown we look for is shown on the weekly chart below:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/141014CROX.png\" alt=\"$CROX breakdown \" title=\"\"><\/p>\n<p>On the chart above, notice the pattern we are looking for is an ugly selloff,\u00a0followed by at least a few weeks of price consolidation that stalls at or just above the 40-week moving average (similar to the 200-day moving average on the daily chart).<\/p>\n<p>Not every short selling setup will be as explosive to the downside as $CROX was on the initial drop, but the idea is that the\u00a0stock should have <em>clearly and convincingly<\/em>\u00a0sliced through both its\u00a010-week and 40-week moving averages before finding support.<\/p>\n<p>In the process of doing so, the 40-week moving average subsequently transforms from a paramount\u00a0support level to a major area of overhead resistance that is tough to push through (especially when the 10-week moving average begins to roll over as well).<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Drive_This_Short_Home\"><\/span>Drive This Short Home<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Avis Budget Group ($CAR) is an excellent, current example of a stock that has recently suffered a massive\u00a0breakdown on high volume, and may be in play for potential short entry sometime next month:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/141014CAR.png\" alt=\"$CAR breakdown \" title=\"\"><\/p>\n<p>After enjoying a 600% run-up since the lows of 2012, $CAR has recently nosedived more than 30% off its highs, while slicing through its 10-week and 40-week moving averages as well.<\/p>\n<p>This stock may be a slower mover than $CROX, but the spirit of the chart pattern is still there.<\/p>\n<p>Although it is still <em>very<\/em>\u00a0early in the pattern, $CAR will be in a major jam if it can&#8217;t get back above 40-week moving average\u00a0after several weeks of chop.<\/p>\n<p>If that scenario plays out, <strong>we will be looking at a possible short sale entry\u00a0into $CAR,<\/strong> with the expectation of an eventual move back down to the $30-$34 area.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Cash_%E2%80%93_Still_King\"><\/span>Cash &#8211; Still King<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>If you are nervous about the short side of the market because you are new to trading, that&#8217;s completely understandable.<\/p>\n<p>If that is the case, I suggest taking some time to learn more about <a title=\"Primer to short selling stocks\" href=\"https:\/\/www.investopedia.com\/university\/shortselling\/shortselling1.asp\" target=\"_blank\" rel=\"noopener\">how<\/a> to short sell stocks, as well as the <a title=\"How to find the best patterns for selling short\" href=\"https:\/\/www.morpheustrading.com\/blog\/best-entry-short-selling-stocks\/\" target=\"_blank\" rel=\"noopener\">best patterns<\/a> to look for when selling short.<\/p>\n<p>But even if you avoid the short side of the market for whatever reason right now, don&#8217;t forget that <strong>cash is always a valid position<\/strong> that enables you to cling to\u00a0your hard-earned profits\u00a0when conditions deteriorate.<\/p>\n<p>Now that leading stocks have begun breaking down en masse and our timing model has officially shifted to a &#8220;sell&#8221; signal, there is <strong>simply no reason to be long right now<\/strong>; the risk of being long clearly outweighs any potential reward.<\/p>\n<p>What do you think? Do you agree?<\/p>\n<p><em>To receive our best stock picks on the short side of the market, including our exact entry, stop, and target prices, <strong><a title=\"Subscribe now\" href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"nofollow noopener\">subscribe now<\/a><\/strong> for your risk-free trial subscription to our nightly swing trading newsletter.<\/em><\/p>\n<div class=\"cfmonitor\" style=\"padding-top: 30px;\"><center><script src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\" async=\"\"><\/script><!-- Footer of content - Large --> <ins class=\"adsbygoogle\" style=\"display: inline-block; width: 336px; height: 280px;\" data-ad-client=\"ca-pub-7565144363001883\" data-ad-slot=\"6017996961\"><\/ins><script>\/\/ <![CDATA[\n(adsbygoogle = window.adsbygoogle || []).push({});\n\/\/ ]]><\/script><\/center><\/div>\n","protected":false},"excerpt":{"rendered":"<p>After languishing\u00a0in &#8220;neutral&#8221; mode since late September, our proprietary market timing system triggered a fresh &#8220;sell&#8221; signal to equity swing traders on October 10. Accordingly, we immediately closed out existing long positions and are no longer to stalking the buy side of the stock market for new trade entries. Moreover, last week&#8217;s\u00a0rule-based shift to &#8220;sell&#8221; [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-4235","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4235","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=4235"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4235\/revisions"}],"predecessor-version":[{"id":11300,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4235\/revisions\/11300"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=4235"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=4235"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=4235"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}