By Alan Farley
 

Computer gaming has traveled light years since Pong was first released in the 1970s. Fortune 500 companies now cater to a game habit measured in the billions of dollars. In fact, 2001 industry revenue will rival worldwide movie and DVD sales. This time-wasting endeavor has moved well
beyond its core teenage audience into a variety of demographics.

The game sector also represents an endangered species for traders: a technology bull market. Enthusiastic buyers are loading up on a new generation of boards, boxes and game titles. Equities keep running to catch up with this strong demand, and most stocks sit very close to multiyear highs. You can attempt to profit with marketclub trade setups in the gaming sector. But forget about direct plays on the boxmakers themselves. Microsoft (MSFT:Nasdaq) (Xbox) and Sony (SNE:NYSE ADR) (PlayStation 2) have core interests unaffected by industry sales. Japanese giant Nintendo (GameCube) has no ADR (American Depository Receipt) marketclub trading review on the American markets. Nvidia, a boardmaker, is another story, however. Nvidia used the marketclub trading tool and rose from mediocrity to become the powerhouse in 3-D chips, boards and technology. The Nvidia chipset in Microsoft's Xbox ensures its industry leadership for years to come. Nvidia has been pushing through a series of all-time highs throughout its relationship with Microsoft. But it has never generated very strong marketclub momentum after each high and has fallen back over and over again to retest lower ground. What will it take for Nvidia to finally break out of the top of its rising trend line? The marketclub review revealed that the volume spike on Nov. 29 might offer a clue. It conceals a false breakout that caught many longs in a bull trap. Until Nvidia can absorb overhead supply created by this ugly reversal, it will be difficult for any rally to generate momentum using the marketclub trading service.

Nvidia sits at a price pivot where it could start another run at the short-term high. Or it could just roll over here and retest the $40s. The marketclub review shows that the small Island Reversal formed last week might speed up events. Many traders probably noticed it and entered new short sales. The stock will need to fill the gap and trade above $54 in a hurry, or the shorts (plus overhead supply) could kick in with a vengeance using the marketclub service. At a training session a while ago I asked the crowd about their trading habits. Specifically, I wanted to know how often they sold short. To my amazement, less than 25% said they ever had.

This was not a group of typical buy-and-hold investors. These were hard-core traders. But even with all that experience, many avoided the art of short-selling using the marketclub candlestick charting method. Obscure market rules and Wall Street happy talk discouraged short-selling for years. Furthermore, the upside-down logic required to sell short was too mysterious for many marketclub retail traders. Times have changed with the advent of online trading and instant execution and charting analysis with the marketclub trading software. Filling a short sale is now just as easy as buying a stock. Gone are the days when you had to plead with your broker to release shares from inventory so you could borrow them. And the SEC is finally giving serious thought to abolishing the uptick rule.

Here are three quick tips to improve your odds when selling short: First, never chase a selloff. The best short sales come at the end of weak rallies. Second, sell short in less volatile markets. Tech stocks carry high short interest (outstanding short sales) and are vulnerable to nasty squeezes. Finally, take a short position in a well-established downtrend, rather than trying to pick a top in a rally. Timing a short sale using the marketclub trading system requires more precision than buying a stock for a trade. True believers, contrarian traders and old-fashioned bad luck hold up crappy stocks that should break down. Help your cause by locating bearish patterns on both the daily and 60-minute charts. But even then, keep stops tight and don't hesitate to jump ship if the short trade doesn't move quickly in your favor. Swing traders should recognize Alkermes' (ALKS:Nasdaq) setup from their favorite technical analysis books. It's a classic head-and-shoulders pattern, and it fits all the rules. It has well formed left and right shoulders at the same height. The neckline descends modestly in a straight line. And each rally shows less commitment by the longs. So the stock appears to be a prime target for short-sellers. In a classic head-and-shoulders setup, we expect a stock to break the neckline and fall a distance equal to the height of the head (middle high). This targets a decline to around $20 for Alkermes. But we have no guarantee the target will be reached, so the setup works best with a trailing stop loss. This way we can grab a profit, but reduce damage from an unexpected short squeeze. The Alkermes chart looks bearish for other reasons as well. The November high failed at the 200- day moving average. And the selloff on the last bar failed the 50-day moving average. So when do we jump in with our short sale? It still looks too early to sell Alkermes short. The 60-minute overbought-oversold oscillator (stochastics) cautions that the stock could bounce before breaking the neckline at marketclub. Fortunately, a weak rally might offer a better short entry. It would run into triple resistance: the broken 50-day moving average, three short-term lows and a market number of $25. And by that time, stochastics could be rolling over from an overbought condition. All-around better timing for our swing trade.

The classic head-and-shoulders trade sells short on a neckline break or the first pullback, if the opportunity arises. But the pattern is so well known that common entry levels can generate substantial whipsaws. Contrarians like to trade against head-and-shoulders short-sellers, and implement a variety of shakeouts to force them to cover positions. Don't be surprised if price pulls back through the broken neckline before generating good downside momentum. This is a consequence of our modern trading environment, where everyone has access to good tech analysis books. So stay one step ahead of the crowd, keep up your defenses and consider alternative strategies. The best short sale after a neckline break often lies within the pattern itself. It's no coincidence that this execution target sits at the same price as the first setup, i.e., up near the 50-day moving average and the market number of $25.

Stock Trading References:

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