Lower pump prices to come - Energy sector next to drop

Dear Readers, I saw many topish patterns two months back and have actually called a top to the stock market in my many subsequent posts. Please click to read: "Go Defensive, protect your capital" & "Possible trend change in the making". According to the charts, the energy sector looks like the next to drop as the topish patterns are setting up for more lower prices to come, in my opinion. For investors with long positions in the energy sector, my advice is to sell, sell, sell !!

A few days back, pump operators had actually jack up the retail price of petrol. I can't fathom the rationale behind the raising of the prices. It doesn't make any sense at all. Perhaps the last draw of the blood from the general public? I foresee cheaper pump prices to come. One just need to take a look at the charts below to understand. A top takes many months to form and the energy sector now finds itself at the edge of the cliff whereby a little nudge would start the free-fall.

Direxion Daily Energy Bear 3X shares (ERY) has an inverted Head & Shoulder patterns formed over many months. Look at the volume for the past few weeks. Goodness me.... I repeat: investors who are long energy sector, SELL !!

For those of you who are not comfortable with shorting the market, please go into cash position. Good weekend to all.

 

Time to Short Sell

Dow Jones and S&P500 plunged big time on Wed on huge volume. My sense is that we could be having a near term correction. We are also seeing more volatility and the erratic price action of stocks could be interpreted as topish signals by the bear camp.

Dow Jones Index

S&P500 Index

Las Vegas Sands (LVS) retested its 50day MA and was currently rejected at the level. It has a reversal hammer candlestick pattern on high volume which to me is tell-tale signs of an overhead supply area. Price action is currently below the Clouds and is a short-selling trade, in my opinion.

The financials are breaking down again. They are looking cheap but i wouldn't touch them until they display strength again. The saying "What is low does not mean it will not go lower" really does hold true!

The chart patterns are looking increasingly like the short patterns depicted in William J O'Neil's book "How to make money selling stocks short". I have got an earlier post here. Do check it out.

Its best to be in cash if you are not shorting the market. We will have to wait for proper bases to form before going long again. Patience is the key.

Anatomy of a Short Sale

I had just completed reading William O'Neil's book- "How to make money selling stocks short". Its a wonderfully written book whereby the author explained the psychology behind making short selling sales.

In the book, O'Neill explained and showed readers the correct point of sale for short selling and explained that what is obvious in the stock market often does not work. For example, the initial break-down of stocks on high volume might not be the best instances to initiate your short-selling positions. The area which all short-sellers congregate would created a floor for the stocks and would help bounce up the prices instead. The secret is to wait for the first wave of early shorts to be run in (stopped out) and to wait for the bull bargain hunters to step in before re-initiating the short selling positions.

I searched the Internet and found that someone had actually did up a slide of an anatomy of short selling which is kind of the same as what was found in William O'Neill's book. This model (click on chart to enlarge) would be extremely useful for all of us. Here you go:

Perhaps you should use this model to look up stocks that are having traits which are exhibiting this type of "behaviours".