Sunday, December 7, 2008
Trade Alert: SKF
We are long the SKF with a 3/4 position and looking to add the last 1/4. We took 1/4 positions at 143.31, 153.75 and 168.59 all above the 100 and 200 day moving average, and it now rests at 117.18 below both moving averages. In the daily chart you can see how the 100 dma and 200 dma has been a zone of support and even a puncture of the zone has been short lived and marked a turnaround the entire year. If you had sold on every puncture on the 100 dma-200 dma zone you'd be burned, going back all year. That's what makes this ETF so dangerous here. This is a short squeezing machine and we don't want to get ground up by it!
Now take a look at the parent index the IYF, it is well below the 200 dma and still ensconced in a well worn downtrend. You can see it closed Friday at 45.51 which is an area from which it retreated in November. What will it do this time, break and run of crash back? there is no way to know, but we don't want to get squeezed out of SKF or keep taking the pain as it falls.
What to do:
If IYF makes a clean break of 46 say 50.25 we will take a full position with a 5 point stop and sell 25 shares of SKF every 10 points it falls.
The only other thing I can think of is to day trade it. The risk there is that this is a fast moving ETF, you may miss it. I'm not saying it can't be done, but it carries a risk.