OSHG Shorting Op?

11/23/11 10:19:01 AM

by Donald W. Pendergast, Jr.

When a stock with negative earnings growth potential flashes a sell signal, that's when both technical and fundamental analysts take notice.

Security: OSG
Position: Sell

Generally speaking, stock traders who trade from a swing or position standpoint seem to have more going for them when they combine fundamental, seasonal, and technical factors into their well-developed trading regimen. Our stock today, Overseas Shipholding Group (OSG), seems to include at least two of those three market factors, and its daily chart appears to be offering traders a fairly low-risk short trade setup (see Figure 1). Here's a closer look now.

FIGURE 1: OSG. A combination of poor fundamentals, weak technicals, and a new RMO short swing sell signal may all be in agreement that going short OSG here could be a profitable move.

Graphic provided by: MetaStock.

Graphic provided by: RMO system indicators from MetaStock 11.

It's an ugly chart to be sure, especially if you begin all the way back to the inception of what has turned out to be an absolutely horrific downtrend in this transport sector stock. Shares of OSG were actually as high as $86.01 in June 2008, a couple of weeks before the price of crude oil embarked on a mind-splattering decline from $145 down to about $33 -- in less than a year. OSG followed suit, plunging from the mid-$80s all the way down to today's bargain-basement price tag of $10.40.

The technicals on the chart are certainly grim; long-term money flow (as evidenced by the 100-period Chaikin money flow histogram) is well into bearish territory, even as the stock has decided to drop out of its recent trading range (pink shaded area) with the advent of the new RMO (Rahul Mohindar) swing sell signal. The stock also boasts rotten forward earnings growth potential for the next fiscal year and has truly awful comparative relative strength versus the .SPX.

All of this sounds more like the script for an el cheapo horror flick, but there you have it. All in all, this looks like it could be a decent short-sale setup for a nimble, skilled trader who is willing to watch the stock like a hawk -- nipping any short-covering rallies in the bud.

There aren't any support levels that will offer to help arrest OSG's slide -- yet another potential boon to short sellers -- but traders still need to exercise wise risk control regardless. Perhaps a two- to three-bar trailing stop of the daily highs would be a simple method of locking in potential gains while helping minimize the effects of a sudden bullish reversal. And by all means, trade the short side with less risk exposure than you would on the long side of the market; a word to the wise should suffice. You certainly don't want to be the turkey who gets his account "cooked" on an unexpected, violent leap higher in this beleaguered stock.

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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OSHG Shorting Op?

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