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Entergy Shows Weak Relative Strength And Strong Sell Signal

04/08/11 08:22:25 AM
by Donald W. Pendergast, Jr.

After a shock selloff in a stock, there is usually a minor rebound, which is frequently followed by a secondary selloff down to retest the initial low. Shares of Entergy may be about to embark on that ride to a retest -- and soon.

Security:   ETR
Position:   Sell

Although I favor trading systems without the use of other discretionary factors, the fact remains that for some traders the combined use of a mechanical system signal in conjunction with various fundamental, seasonal or technical tools remains a viable and frequently profitable way to trade. Here's a look at an outstanding mechanical Rahul Mohindar (RMO) swing sell signal in Entergy (ETR), one that arrives at a critical and potentially profitable technical juncture on its daily chart (Figure 1).

FIGURE 1: ETR, DAILY. When a proven trading system's signal is generated in the context of other compelling chart and/or broad market dynamics, some traders will gain the extra confidence needed to actually take the trade.
Graphic provided by: MetaStock.
Graphic provided by: Rahul Mohindar RMO indicators from MetaStock 11.
ETR has already endured a shock selloff and also appeared to have completed a proportional retracement in its aftermath. With the .SPX also at or very near an interim cycle high (daily chart basis) and the fact that ETR has the worst 13-week relative strength ranking versus the .SPX -- even as a fresh RMO sell signal fires -- this trade setup is sure to catch the eye of more than one prospective short seller. To put the icing on the cake, the stock's 100-period Chaikin money flow (CMF)(100) is also below its zero line, apparently offering a decent, low-risk short trade setup.

Here's a numerical description of the risk/reward bias of this trade, which is nothing less than outstanding:

67.22 buy-stop: To cover at a loss if wrong
66.60 sell-stop: To initiate the position
64.72 initial profit target: Take the money and run (if reached)

In addition, you'll also want to run either a two- or three-bar trailing stop of the daily highs if the stock starts to drop as anticipated. Even if the profit target isn't reached, such a trailing stop can help you lock in at least a bit of profit and/or help further reduce the initial risk on the trade.

Simply put, the potential reward is $1.82 per share and the initial risk is $0.62 per share, which equates to a risk/reward of nearly three to one. For a daily short setup, this is exceptionally good, and if you've already had some success at making money on the short side of the market, be sure to take a close look at this trade and do a little more confirmation work to ascertain for yourself that this really is a low-risk trading opportunity.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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Date: 04/12/11Rank: 4Comment: 

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