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TRADING SYSTEMS


Janus Capital Throwing In The Towel?

07/29/11 08:51:40 AM
by Donald W. Pendergast, Jr.

When it rains, it pours -- or so it seems sometimes. Here's a look at a stock getting creamed by the uncertainty surrounding a possible government debt default.

Security:   JNS
Position:   Sell

Shares of Janus Capital (JNS) are down by more than 40% since making a major high back in mid-February of 2011, and from the looks of its daily chart (Figure 1), the selling may only be begetting even more selling. With so many stocks in the Standard & Poor's 500 firing Rahul Mohindar oscillator (RMO) swing sell signals on Wednesday, July 27, 2011, now may be the perfect time to examine one of the weaker relative strength issues in the .SPX complex.

FIGURE 1: JNS, DAILY. Support levels are being broken all across the vast complex of .SPX component stocks. Will we see a healthy rebound on word of a government debt deal in Congress?
Graphic provided by: MetaStock.
Graphic provided by: Rahul Mohindar oscillator (RMO) from MetaStock 11.
 
Similar to my AKS Steel (AKS) article from July 28's Traders.com Advantage, we once again find ourselves viewing a daily chart of a stock that has blown out major support -- this time even as it fired a potentially powerful RMO swing sell signal. Also as in the AKS chart, momentum is bearish and money flow (in this case, the Chaikin money flow histogram (CMF)(34)) is weak to neutral at best. Then add to all of this the fact that the 13-week comparative relative strength ranking of JNS versus the .SPX is absolutely abysmal -- and getting weaker, no small feat.

FIGURE 2: BID-ASK. Bid-ask spreads are reasonable in the September 2011 JNS $9.00 puts, unlike its deeper-in-the-money partners in crime.
Graphic provided by: Thinkorswim.
 
Buying a September 2011 JNS $9.00 put option might be a sensible way to play a possible period of further weakness in JNS shares, especially now that the stock has broken that powerful support zone (Figure 2). If you use $8.75 in the share price as the trigger to sell the option at a loss, you may be well-served, as a rise above the open gap prior to the plunge might act as a strong reversal signal. Conversely, using a two- to three-bar trailing stop of the daily highs might also work well to help lock in any profits achieved on a further ride south in JNS. The next minor support area doesn't kick in until the mid-$6.00 range, so who knows how far down JNS might drop before beginning to recover?

Always limit your risk, no matter how sure you are that a particular trade is sure to work out. Risking no more than 1% to 2% of your account equity (and sometimes even less) is always a good idea, no matter how successful you've been in the markets lately.



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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