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Pfizer Ready To Short?

07/15/08 11:36:44 AM
by James Kupfer

Pfizer Inc. is an established downtrend. Has its recent upside correction put it in a position to short?


Security:   PFE
Position:   Sell

The moving average (MA) is a frequently used indicator in technical analysis. It shows the average stock's price over a given period and can be used to identify the direction of a price trend. In an uptrend, a short-term exponential moving average (EMA) will stay above a long-term EMA, and the opposite occurs in a downtrend.

For swing trading, the "swing zone" between the 20-day EMA and the 50-day EMA can be very important as it provides pullback entry opportunity in a trending stock. If the stock is in an uptrend and enters the swing zone, we can expect a possible buying opportunity. Consider entering a long position when the stock closes above its 20-period EMA. Similarly for a downtrending stock, which enters the swing zone, we can look to short the stock when it closes below its 20-period EMA.

FIGURE 1: PFE, DAILY. The 20-period EMA (green line) has stayed below the 50-period EMA (red line) for an extended period.
Graphic provided by: Wealth-Lab.
 
As shown in Figure 1, the 20-period EMA (green line) has stayed below the 50-period EMA (red line) for an extended period. This demonstrates that the stock is in a downtrend. For the last three days, PFE has stayed in a swing zone, so there is an opportunity to short. On July 11, the stock closed below its 20-period EMA. Now we can potentially short the stock below its last bar's low (that is, $17.68) with an initial stop-loss above the stock's recent high of $18.57.



James Kupfer

Mr. Kupfer is a market professional and amateur stock market commentator. Disclosure: It is likely that Mr. Kupfer has or will enter a position in any security he writes about.


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