Why It's Time to Short Cooper Companies

Dear Professor Zucchi,

I've become a huge believer in technical analysis. But unfortunately, for every support one sees, there's also resistance -- which is where I guess the money-makers reside. Right now, I'm looking for shorts to balance out my portfolio and I was looking at some of yours that are TD-inspired.

Please explain your decision to short Cooper Companies (COO). From what I see on the charts, it's oversold already on daily and 60-minute time frames and looks like it has support at $23.50-24.00 on the daily chart as well. Are you legging into this? If not, how are you approaching it?

Thanks so much for all your help and education.

Sincerely,

Minyan Gene 


Dear Minyan Gene,

You're absolutely correct in stating that "for every support one sees, another sees resistance." That subjectivity is precisely what DeMark indicators attempt to filter out of the chart-reading process. But if it were that easy -- i.e. just follow DeMark -- it would be, well, too easy. DeMark himself has created a slew of indicators, some of which I'm still struggling to understand, and many of which contradict each other at any given moment.

In the case of Cooper Cos., here's the daily chart I'm looking at:


Click to enlarge

The solid red line marks a “qualified break” of the TDST Down level. According to DeMark, when a TDST break is qualified, it suggests that the primary trend of the price has changed, and that the new trend will not exhaust itself until a Countdown 13 Buy pattern is completed.

In COO’s case, we first can look forward to a “TDST Setup 9” completion -- which is the prerequisite to starting the Countdown process. So, in theory, the price could have a long way to fall before the selling is exhausted. Along that path, we'll certainly have rallies. And in fact, the solid green line you see right at today’s price consists of a “qualified upside break” of a DeMark trend-line, which projects a recovery rally to $26.75. So some strength here wouldn't be a shocker.

The above begs the question: Why jump into the short now instead of waiting?

In my case, I'm looking for a few more shorts as the market seems to be rolling over, and it's the chart that pushed me into the COO short now:


Click to enlarge

Here you can see that there are 2 distinct “qualified” DeMark trendline downside breaks, projecting to $21.06 and $19.06. The weekly Buy Setup count is at a measly “2”; the first Prop Down Momentum level (jagged yellow line) is at $19, and Absolute Retracement Down levels (not shown) are below that.

In summary, while in the next few days we may see some strength in COO, longer term, the downside risk/reward looks pretty decent to me. So far, I've shorted about 50% of what would be a normal-sized position for me. I'll add to it on strength, but preferably, I’ll be able to press it on weakness. If the price exceeds the $28-29 area, it may force me to rethink the position.