Hey Trader,
A stock runs up 80 points. So it’s over-extended, right?
You short it because the chart looks finished.
Extension proves nothing about direction. That guess carries unlimited risk above you.
I ran that same play for years. I would look at a chart and go, “Oh, that just cannot go any higher.”
That rule lives nowhere except your own head. You invent it because the number feels too big.
Sandisk cured me of the habit. It added another 35 points after I had written it off, then closed the day right up there.
I have made millions and lost millions in almost 40 years. The losses came from underestimating momentum.
Everybody at Theo knows me as the short seller extraordinaire. I would take the short 100 times out of 100.
I still will not touch the SMH here. Shorting a parabolic monthly MACD is out of your mind territory.
Today I show you the shorts I refuse and my reason for each one. You also get the one condition that changes my answer.
The concept is directional bias. Momentum has to break before a short earns you anything.
My Rule On Vertical Indicators
I do not short highs when the indicators run vertical. That rule holds no exceptions for me.
A vertical monthly chart tells me momentum still owns the tape. Shorting into it hands the market unlimited risk above my entry.
You never know how high a stock can travel. That single fact ends the debate before I place the order.
Until a chart actually changes its directional bias, I have no interest in the short side. My patience there is total.
Discipline like that keeps the damage small. My worst loss runs around 10% to 12%, and I have never taken a massive one.
What Vertical Looks Like On My Charts
I pull the long-term time frames first for their smoothing effect. A monthly chart strips out the noise that fools people on a daily.
Then I check one thing. A vertical monthly or weekly reading kills the trade for me.
The SMH shows it right now. Shorting a parabolic monthly MACD there sits in out-of-your-mind territory.
Momentum indicators only earn their keep when they create volatility and separation. Flat readings turn the whole exercise into a guessing game for fools.
Sandisk Took 35 Points Out Of Me
I used to run the opposite play. I would stare at a chart and go, “Oh, that just cannot go any higher.”
Then the number starts doing your thinking. A stock up 80 points feels like it owes you a pullback.
That rule exists nowhere except inside your own head. You built it from a price instead of a signal.
Sandisk showed me the bill. It added another 35 points after I wrote it off, then ended the day right up there.
I have made millions and lost millions in this business. Every large loss traces back to underestimating momentum.
I got burned enough times to quit the trade for good. That habit no longer encumbers me.
Momentum owes nothing to your opinion about the price.
The Short I Took Instead
I do still add shorts. I put the Interactive Brokers (IBKR) call spread back on today after covering half of it earlier.
That chart earned the entry. Price punched through the level and sellers showed up immediately.
They popped it to drop it. Nobody was buying the move at all.
Financials and brokers hold my attention on the short side right now. Those charts have given me something to work with.
Certain names never make my list, and I refuse a short whenever I see any of these:
A vertical monthly or weekly reading, which the SMH carries today
Buyers stepping in all day long, which Microsoft (MSFT) did yesterday and again today
A price that merely looks extended, like the 80-point run I used to trade against
Microsoft brought more buyers in even as it backed off today. I cannot short a stock that people refuse to sell.
How You Handle This On Monday
Start with the monthly chart before you place a single short. A vertical reading there ends your conversation early.
Then wait for the directional bias to change. Repaired technicals hand you a real entry instead of a hope.
Elizabeth Copeland referenced a study on shorting all-time highs today. She put the failure rate above 50%, somewhere near 52%.
Keep your size very small if you insist on fighting momentum. Get in and out the same day, or skip the trade completely.
The five-minute money flow also protects you here. A gamma squeeze can take 40 points out of you inside five minutes when an institution buys a million shares against your position.
A short deserves your money once the chart breaks, never because the number got big.
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