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RESISTANCE, DROP

  
  Education
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Resistance is a powerful word, but in the market it can mean the end of a long climb up the latter of a successful bullish run. Points of resistance aren’t necessarily concrete, think of them more as a tightened rubber band that if you push into it to hard, it can send you plummeting very quickly.

Resistance is what it implies, a possible push against current price action. There are two correct responses you can have at a resistance, turn back (with a proper candlestick confirmation), or wait to see if the resistance is overcome, You never want to go head on into resistance because chances are you will get your butt handed to you. The other thing you don’t want to do is automatically turn back without a little push. YOU DON’T ALWAYS WANT OR HAVE TO BE IN THE MARKET. There are times when you need to be on the sidelines in observation mode; at a point near resistance is one of those times. Trying to break resistance is like trying to run over a locomotive on a bicycle. You can’t do it!! Your best option at resistance is to rest to see either the strength or weakness of your price action. Whether price is successful at demolishing or chipping away resistance or does a turnabout, wait until it makes a concrete decision before following. NOTE: wherever price leads, follow until you get a signal that it is no longer safe to do so, or until you have had your fill of a nice fat profit.

Let other traders jump in front of the locomotive to slow it down; DON’T YOU DO IT! Save yourself and wait until it is safe. Resistance points can either be safety zones put in place to help you protect your profits or the force and authority to crush you if you try to cross the line. When you come to a resistance point it means STOP!!!!, DO NOT PROCEED WITH CAUTION it is a RED LIGHT, when it is green, proceed with caution because there are times when price will break resistance only to fall back limp under the weight of the break through triumph.

Rules for Shorting

  
  Education
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Basic Rules for Shorting Stocks

1. Shorting Momentum names is dangerous: Unless you are Superman, never step in front of a speeding locomotive

2. Valuation alone is insufficient reason to get short a stock — History teaches us that cheap stocks can get cheaper, dear stocks can get more expensive

3. ALWAYS work with a pre-determined loss – either a physical or mental stop loss — Never leave yourself open to infinite losses

4. Fundamentals tell you WHY to short something, not WHEN to short it. ALWAYS have some technical confirmation before shorting. Make a short selling wish list, then WAIT for technical confirmation. (We use Money Flow, Short Term Trend lines, Institutional Ownership, Analyst Ratings).

5. It is tough to be a contrarian: During Bull and Bear cycles, the Crowd IS the market.

You have to figure out two things:
…a) When the crowd is wrong — Doug Kass calls it “Variant Perception”
…b) When the crowd starts to get an inkling they are wrong

At the turns — not the major trends — is where contrarians clean up.

6. Look for Over-owned, Over-loved stocks: 95% Institutional ownership, All buys or Strong Buys (no sells), and 700% gains over the past few years are reasons to put names on your short selling wish list.  (That is how my partner Kevin Lane found and shorted Enron and Tyco back in the 1990s).

7. Beware the “Crowded Short“– they tend to become targets of the squeeze!

8. You can use Options to either juice your short returns, or pre-define your risk capital (options)

Rules for Shorting

  
  Education
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When it comes to shorting, many people are in the dark. It is more challenging to be short, subject to squeezes; the return max out at 100% — versus unlimited upside for longs.

Over the years, I have put together some rules for shorting. These are pretty broad and general, but they have kept me out of trouble when

Basic Rules for Shorting Stocks
1. Shorting Momentum names is dangerous: Unless you are Superman, never step in front of a speeding locomotive
2. Valuation alone is insufficient reason to get short a stock — History teaches us that cheap stocks can get cheaper, dear stocks can get more expensive
3. ALWAYS work with a pre-determined loss – either a physical or mental stop loss — Never leave yourself open to infinite losses
4. Fundamentals tell you WHY to short something, not WHEN to short it. ALWAYS have some technical confirmation before shorting. Make a short selling wish list, then WAIT for technical confirmation. (We use Money Flow, Short Term Trend lines, Institutional Ownership, Analyst Ratings).
5. It is tough to be a contrarian: During Bull and Bear cycles, the Crowd IS the market.
You have to figure out two things:
…a) When the crowd is wrong — Doug Kass calls it “Variant Perception”
…b) When the crowd starts to get an inkling they are wrong
At the turns — not the major trends — is where contrarians clean up.
6. Look for Over-owned, Over-loved stocks: 95% Institutional ownership, All buys or Strong Buys (no sells), and 700% gains over the past few years are reasons to put names on your short selling wish list.  (That is how my partner Kevin Lane found and shorted Enron and Tyco back in the 1990s).
7. Beware the “Crowded Short“– they tend to become targets of the squeeze!
8. You can use Options to either juice your short returns, or pre-define your risk capital (options)

That is my short shorting list . . .

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