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TRADING SYSTEMS


Walgreen's And A Fresh Sell Signal

11/04/11 01:31:45 PM
by Donald W. Pendergast, Jr.

With a fresh sell signal and weak relative strength, shares of Walgreen apparently need a new prescription to stave off further selling.

Security:   WAG
Position:   N/A

When a stock is trading below its 50-day moving average and a new sell signal appears, it's time to do some additional evaluation to see if a short sale is a good idea. Here's a look at the new Rahul Mohindar oscillator (RMO) swing sell signal in Walgreen (WAG). See Figure 1.

FIGURE 1: WAG, DAILY. Going short a stock can be tricky at times, especially if the sell setup occurs close to a major support level. This trade setup might be best for very nimble, short-term traders.
Graphic provided by: MetaStock.
Graphic provided by: RMO indicators and tools from MetaStock 11.
 
The 50-period moving average (and its exponential counterpart, EMA) is a very good intermediate-term delineator of trend in most stocks and futures contracts. Right now, WAG is trading well below its own 50-day EMA and is very close to approaching the major swing low made on October 4, 2011. Clearly, the stock failed to gain much during October's impressive rebound rally, barely mustering a 9% gain before tumbling and giving just about all of those gains back.

An RMO swing sell signal has just printed and it takes on greater significance due to the extremely negative long-term money flow (the 100-period Chaikin money flow histogram at the bottom of the chart). If we see a break of and a daily close below the $31.60 price level, the selling pressure could realy start to pick up in this key health-care sector stock.

WAG also features very poor comparative relative strength against the .SPX, which could be yet another reason to consider jumping on a short trigger of this trade, which would be a drop below, say, $32.32 (Tuesday's low). Be aware that since WAG is trading so close to major support, any failure of the trade to trigger or repudiate lower prices after a break below $31.60 could lead to a powerful snap-back rally. With a dividend yield of 2.8%, the stock might also be an attractive value play once it finally bottoms out and starts climbing at some point.

Wednesday's trading action could really be important: Traders and investors want an answer to the question, "Is this three-day broad market selloff just a fakeout before a sustained year-end rally?" The answer to that question will not only affect the outcome of this setup in WAG but the entire market itself. Stay tuned, as this is likely to get exciting, real soon.



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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