Due to the negative action of the indexes on Friday as well as expectations of continued pressure on the indexes the short side will likely be more attractive for the next couple of weeks. PAAS (Friday Close at 25.78)

PAAS is a stock that had been trending upward over the past 4 years but during that time has also shown a propensity for trading sideways during intermediate time frames. On January of this year PAAS had a breakout above the 26.00 level and managed to make a high of 32.46 in April. During the following 17 weeks it traded between $32 and $26 and built a major support level between 26.15 and 26.38 on a daily closing basis. That support was then broken on August 14th and the stock proceeded to drop down to 20.80.

During the recent rally in the indexes PAAS managed to rally from its lows and on Thursday of this past week was able to get a close at 26.17 and a retest of that major support level now considered major resistance. On Friday it failed to get any follow through and started to fall back and closed below the 26.00 level. With the probable continued weakness in the indexes and the chart formation of PAAS this looks like a very attractive short opportunity.

It seems likely that PAAS will be in a trading range between $26 and $20 for the next few months. Supports below are all minor and offer little strength in preventing a drop once the stock gets moving back down.

There is some important support at 23.42 but under that the next support of consequence is the previous low at 20.80. If PAAS does get going to the downside the objective would be the 200-day MA as well as previous important support at 19.72.

Sales at Friday's closing price of 25.78 or higher should be attempted and a stop loss placed at 26.92 intra-day or 26.44 stop close only. With the first objective being 23.42 and the second and main objective of 19.72 you will see a 3-1 and a 5-1 risk/reward ratio.

My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).

MWA (Friday close at 12.24)

MWA is a stock that I have previously mentioned twice. The last time I mentioned it as a short position was May 17th and I went short at 16.32. I ended covering the short at 16.20 and the stock shortly thereafter ran up to 19.35 before giving it all up. This is a stock that has only been trading for 18 months and the MO of the company had been as a trading range stock.

A few weeks after I shorted back in May I read an article on Yahoo Finance that this stock was on a list as one of the best 50 fundamental stocks around and they were expecting big things in the future. After I liquidated my short position MWA made a new all-time high at 19.35 and beat the old time high by almost $1 dollar. Since then the stock has dropped precipitously and has now beat the old 13.02 low by more than $1 dollar.

The chart has shown that MWA has not been a trending market but rather a trading range market. It seems evident, though, that when the stock made a new all-time high and failed to follow through disappointment ensued and the stock dumped to the same degree to the downside that it had previously exceeded its high.

MWA has not had a habit of following the indexes and over the past few days seems to be showing some bottoming action. I do believe that the stock has a fair chance of having found a bottom and will likely generate a rally upwards and get itself back into a trading range market. Certainly the strong fundamental picture and listing as one of the top 50 stocks to purchase leads credence to the idea of purchasing the stock at these levels.

Support is found at the all-time low of 11.88. Resistance is found at 13.55 (previous support area with a myriad of lows) and 14.62 (50-day MA as well as an area with lots of intra-day highs). Purchases of MWA between 12.00 and 12.16 and using a stop loss order at 11.78 and an objective of 13.55 will offer a risk/reward ratio of approximately 5-1. If 14.62 objective is used the risk/reward ratio rises to 8-1.

My rating on the trade is a 6 (on a scale of 1-10 with the strongest probability rating being 10).

Keep in mind that the objectives I have outlined are chart oriented. If the listing as one of the top 50 fundamental stock is to be believed the risk/reward ratio on this trade could be extremely attractive. Certainly a rally back up to the $18 level would offer a risk/reward ratio of 20-1. CHINA (Friday closing price 7.54)

CHINA had been in a trading range between $8 and $10 since February 27th until this past week when it gapped down and broke below the 8.00 support level due to a negative earnings report. The immediate break took it down to a 6.91 low and now is trying to re-test the $8 breakdown level.

CHINA has no support of consequence below the 8.00 level until is reaches 6.01 and even then that support cannot be considered major. In addition the drop down to 6.91 failed to close an old gap from November which is at 6.84.

Evidently the earnings report was of enough consequence to cause the stock to go down even before the stock market started to break. With the indexes under pressure it is likely that more selling pressure will come in to CHINA and a closure of the gap and test of support at 6.00 is likely. It is possible that a new trading range between $6 and $8 will now be in effect for the next few months.

Sales of CHINA between 7.97-8.00 should be attempted and a stop loss placed at 8.56. The stop loss is a little high right now but it allows for the closure of the gap at 8.40 as well as re-test of the 20-day MA. The resistance between 8.00 and 8.40 on a closing basis is also very strong as well. Because of all of these reasons it is unlikely that the stop loss area will be triggered. If CHINA rallies and fails to close the gap or even get above the 8.00 level with any strength, the stop loss will likely be lowered in a very short period of time. Objective of the trade would be 6.00 and possibly as low as the $5 area. Risk/reward ratio is 4-1 or higher.

My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).

CLDN (Friday closing price 14.74)

CLDN has a chart that looks to be on the verge of a breakdown and a strong move down. It is also a chart that has been on a well-defined downtrend since June of last year and now finds itself at the last strong vestige of support. Any further breaks from this level will likely generate aggressive selling.

The last area of support is 14.54-14.57. That is a support level that has been previously tested successfully. The last time the stock went down to that price it rallied all the way up to 18.22. Nonetheless the fact that CLDN is back down to this price one more time has increased the probabilities that this time the support level will break. In addition the current weakness in the indexes could be the catalyst that would cause CLDN to break down.

The next support level of any consequence below 14.54 is 12.23. That is the area where there is some minor support as well as the 200-day MA. It is not an area, though, where it is likely that strong buying would occur and therefore the possibility of CLDN going even lower is decent.

Sales of CLDN should be attempted on a break of 14.54 by placing a sell stop order to generate a short position at 14.44. Should you get filled you can place a stop loss order at 14.64 stop close only or an intra-day stop loss at 15.08. Objective of the trade would be 12.23 which would offer a risk/reward ratio of at least 4-1.

My rating on the trade is 7 (on a scale of 1-10 with the strongest probability rating being 10).