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VIDEOFive Reasons Not to Short CERN
No edge in playing a pre-emptive retracement right now.
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I've been following Cerner (CERN) over the last weeks, and it looks like it's going to retrace -- which could offer a good risk/reward opportunity on the short side. Could you offer your thoughts on it? Your posts have been really helpful in improving my trading method and discipline. -Minyan Mario
Minyan Mario,
Thank you for your kind sentiment. Together, let's look at the stock chart objectively and analyze the pros and the cons.
Click here to enlarge.
1. After a nice move up at the end of April, it’s merely consolidated its gains.
2. It has been able to stay consistently above the 20-dma despite the sharp price appreciation.
3. CERN is in a "hot" sector. Other names in the health-care information sector, such as Quality Systems (QSII), Medassets (MDAS), and Eclipsys Corp (ECLP) are holding up relatively well.
4. It's one of the rare stocks (in this market) to be very close to its all-time highs ($65 in 2007) and often, stocks do not retreat from such close proximity.
5. The short percent of float was a hefty 17% (note that that's after the May jump). While I have tremendous respect for short sellers and their depth of knowledge, it's true that such high short-interest can drive the prices higher in the short-term by way of short squeeze.
And here are the cons:
The main thing I see "wrong" with CERN is its distance from its 200-dma, but that's incidentally a sign of strength, only the too far, too fast kind. I've never really found much reward in shorting something just because "it went up too far, too fast." We also can't attach meaning to the lone day of selling seen in the chart until there's follow-through of some kind.
Bottom line, it can still go down. But I see no edge in playing a pre-emptive retracement; I would get excited on the short side only if I see some signs of it cracking -- which aren't evident yet.
Best regards,
Smita Sadana
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