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TRADING SYSTEMS


Genworth Financial Sinking Fast?

05/06/11 08:21:14 AM
by Donald W. Pendergast, Jr.

The entire commodity and stock market complex appears to be initiating a full-blown descent toward more supportive price levels, with the financial sector stocks also joining in.

Security:   GNW
Position:   Sell

Shares of Genworth Financial (GNW) are really taking it on the chin as of late, and with the stock now issuing a new Rahul Mohindar oscillator (RMO) swing sell signal, even as it falls at a faster rate, then with its parent index -- the .SPX -- the stock looks like a fairly low-risk short setup heading into a seasonally weak period in the broad US stock indexes. See Figure 1.

FIGURE 1: GNW, DAILY. Setting initial price targets and running close stops when taking a short position may help alleviate some of the danger involved from unexpected short squeezes.
Graphic provided by: MetaStock.
Graphic provided by: Rahul Mohindar RMO from MetaStock 11.
 
With the broad markets having made a definite weekly and daily cycle high over the past week or so, it now pays to keep our attention focused on the weak relative portions of the stock market, looking to capitalize on the output of a reliable trading system that can help identify logical short sale plays. Currently, GNW features two essential technical traits that savvy short sellers need to look for:

1. Strong downward momentum, as evidenced by the RMO at the top of the chart.
2. Weak money flow, as also evidenced by the 34-period Chaikin money flow (CMF)(34) at the bottom of the chart.

In addition, the stock is also below its downsloping 50-period exponential moving average (EMA) and boasts one of the weakest comparative relative strength rankings versus the .SPX over the past 13 weeks (one calendar quarter). All in all, this looks to be a decent shot at a play on the short side of the market.

When going short something as volatile as an individual stock (as opposed to a stock index exchange traded fund), it's usually a good policy to establish an initial price target as well as a close initial/trailing-stop combination. Running a two-bar trailing stop of the daily highs might make more sense than running a looser volatility-based version, since the possibility remains that a stock can suddenly erupt into a violent short squeeze, usually at the worst possible time, such as when you've neglected to set a price target, and thus miss out on a quick (if modest) profit and then get stopped out for an unnecessary loss as shorts begin to cover en masse.

Trading the short side of the market isn't necessarily the safest nor sanest way to spend your time interacting with the financial markets, but for those skilled traders who are nimble, fearless, and in possession of a winning trading methodology, it might just be one of the more satisfying aspects of their trading regimen.



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: lineartradingsys@gmail.com

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