6.3. SHORTING ROCKET STOCKS

A high-probability short-selling method we've discovered, which is unrelated to the normal types of short-sale situations we look for in the head & shoulders, late-stage-failed-based, and Punchbowl of Death short-sale set-ups is what we call Exploding Rocket Stocks. Rocket stocks are defined as "hot" stocks that move at least 4.5 times from their high-volume launch point, which usually occurs on a breakout from some sort of consolidation on volume that is greater than twice the normal average daily volume. The 4.5-fold move generally occurs in four weeks or less as these stocks launch like "nuclear" rocket stocks. But after launch, nuclear rockets eventually blow apart, and history has shown that these rocket stocks do the same, usually within a few weeks after their launch. Thus, ample profit opportunities abound by going short at the right time, and the time value can be enormous. Rocket stocks are shorted after their high volume climax run as they break below any day's intraday low, which generally is the first sign that the climax top is at its end. While this is a risky, more volatile technique, the reward is that the odds are fantastic. 95.7 percent of all rocket stocks short-sale set-ups from 1991–2008 were profitable, and 84.2 percent of all rocket stocks short-sale set-ups fell at least 50 percent off their absolute price peak on the "rocket ride." Knowing this, it can be advantageous to pyramid your short position as the stock continues to ...

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