This post is in response to several emails that we have received regarding our earlier short sale on $NFLX (Netflix) and $VECO (Veeco Instruments).
Shorting high momentum stocks, especially those with high short interest is fraught with risk. Therefore, only those with significant short selling experience and experience applying technical analysis on a very short term basis should undertake such trades. Always have a predefined stop zone and be willing to take the loss if the prices spike into your stop zone.
Regarding this morning’s $NFLX trade, the post said to short only on spikes up using technicals. Shortly afterwards there was a spike up and very short term technicals gave a short signal at $100.50. Those following the ZYX Change Method Trade Management Guidelines should have taken 10% of the full position size at that price. Another 5% would have been taken around $102.50, which is in the range of the high of the prior day, based on very short term technicals. One way to maximize returns would have been to wait for the prices to cross $102.50 and let a large number of stops hit which were presumably in the range of $102.50 to $103.21. If such a scenario materialized, the addition would have been around $103.00. But this second spike scenario did not happen, therefore the position size would have stayed at 10% of the full size.
As the stock price dipped, the very short term technicals showed possibility of a strong reversal at $96.60. Based on the ZYX Change Method Management Guidelines, profits should have been taken on 50% of the position at $97.60 giving a gain of $3.90.
On the remaining position, the stop should be at $103.31. If the stop hits the net result will be a profit. The ZYX Change Method calls for actively continuing the above process responding to stock price movement as long as the first four screens remain negative and there is a trigger event.
