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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Logain Ablar who wrote (39021)	3/17/2003 6:06:22 PM
From: Johnny Canuck	Respond to of 71349

We may be closer to a bottom than some think. When mainstream newletters like Briefing.com start talking about strategies to short, the average guy is the street is finally thinking short and they are usually the last to know. ********************************* 10:57 ET 30% Rule and Black Box (BBOX) 27.56 +1.03: Several weeks ago Briefing.com issued a series of Briefs on short selling. In the Brief entitled "Short Strategies" we outlined a number of strategies successfully employed by short sellers, including the 30% rule. For those of you that missed that Brief, or simply don't remember the details, the 30% rule simply states that traders should short stocks that fall by 30% or more in a single session. There are a few additional rules to consider. First, the stock should be above $7, after the decline. Secondly, the decline should occur on sizeable volume. Finally, the more serious the reason for the decline the better. In other words, a big earnings miss is good, but a SEC investigation (for example) is probably better. As noted in the Brief, studies have shown that stocks meeting the above criteria are down big 3-, 6- and 12-months after the one day drop in roughly 75% of the cases. And, considering that the stocks typically hold up reasonably well on the day immediately after the big plunge, short-sellers have a decent entry opportunity. Interestingly, on the very date we issued the Brief, the market gave us a 30% candidate -- PEC Solutions (PECS). The stock tumbled 35.8% on 2/12, amid an enormous jump in volume (9.9 mln shares). As usual, PECS held up reasonably well for a couple days immediately after the big plunge. But it didn't take long for the stock to crack. Note that PECS is down another 35.5% in today's session on an earnings warning. Assuming investors shorted the stock on the day after it originally tumbled, they would be looking at a gain of 44%. For those of you that missed out on PECS, don't fret. The market may not give us many 30% one-day losers, but you only need to hit a few of these to enjoy a pretty decent year. The most recent example occurred last week when Black Box Corp. (BBOX) plunged 31.6% on 3/12 (one month to the date after the first PECS debacle). BBOX's volume on the day of the big drop surged to 7.6 mln shares. General reason given for the massive retreat -- a significant profit warning. But as Briefing.com noted in its 3/12 Story Stock, the drop in cash flow was probably the real culprit. As is often the case after a stock drops so much in one day, it has held up reasonably well over the past several sessions. In fact, with today's gain of 1.03, stock now trading slightly above where it closed on the day of the big price drop. Nevertheless, the problems haven't gone away and if BBOX is like most of the other 30% candidates, more bad news and more price declines are on the way. With the market set to rally on war with Iraq this might not be an ideal time to initiate a short position of any kind. However, for those investors that don't believe the market will stage a sustained rally on the outbreak of war in the Gulf, BBOX might make a decent hedge given the usual success of the 30% rule. -- Robert Walberg, Briefing.com