With the indexes breaking many of the stocks that were prime candidates for short positions last week have lost a large portion of their profit potential. Though shorting stocks will likely continue to be the most profitable, there will be increased volatility in the market and all positions (both purchases and shorts) should be started with only short-term objectives in mind.

TRAD (Friday close 11.86)

TRAD is one of a few stocks that might benefit from the break and volatility of the indexes. TRAD is a brokerage firm and the increased trading and volatility that will be seen in the coming weeks and months should generate a higher earnings report next time around.

In addition TRAD reached a major level of support at 11.40 this past week and was successful in generating a substantial rally amidst the breaking indexes. In fact, on Thursday, TRAD had a reversal type day with lower lows and higher highs than the previous day and closed in the "green" and just a few ticks from the high. Such action indicates not only that TRAD has found a probably bottom to its recent price slide but that investors consider the break in the indexes a positive (rather than a negative) for the stock.

Dips on TRAD down to the 11.64-11.66 level can be bought with a stop loss order placed at 11.34.

The 13.30-13.40 resistance level was an important previous support level (for many weeks) and when broken generated the drop into the low 12's. It was then re-tested and when not broken generated the move down to the present level.

The 13.30-13.40 level now must now be considered strong resistance and until broken will likely hold any rallies.

It is therefore probable that TRAD will be in a trading range between 11.40 on the downside and 13.40 on the upside and trading the range will likely make the most sense.

Risk/reward ratio on this trade is good. Purchases at 11.66 and using a stop at 11.34 and an objective of 13.28 (previous resistance) will offer a risk/reward ratio of 5-1. Due to the falling indexes and very evident trading range in TRAD with limited profit potential it does not make sense to chase it. Wait for your price and if not obtained forget the trade.

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

RMBS (Friday Close at 19.62)

RMBS is a stock that has now given several sell signals as of late, prior to the break in the indexes. After the bullish earnings report RMBS went above a previous weekly high at 23.83 with a rally up to 23.95 but failed to confirm the breakout and began to trade down well before the break in the indexes. That failure, in and of itself, offered an objective of a re-test of the 18.87 50-week MA. On the way down, and due in part to the break in the indexes, RMBS gapped down last Tuesday from 21.01-20.85 and proceeded by Thursday to reach the 50-day MA at 18.87. It then rallied up the same day and also re-tested the gap area with an intra-day move up to 20.79.

That gap between 19.35-19.95 that was previously being considered as a "runaway gap" has now been closed and therefore the gap down at 17.14 is once again in risk of being closed as well.

The support in RMBS at 18.87 is tenuous (50 week MA) and if able to break below it will likely generate closure of the gap and re-test of support at 16.00-16.50

If the stock market is able to rally at the beginning of the week RMBS is likely to rally as well. The 20.79 gap area will act as resistance and may prevent further rallies. There is decent resistance on the 10-minute chart between 20.20-20.50.

There are two possible strategies on this trade.

A sale of RMBS between 20.20-20.50 using a stop-loss at the closure of the gap (21.00) and having an objective of a closure of the gap and drop to support at 16.50 will offer a 7-1 risk/reward ratio. This strategy requires patience as RMBS is presently 60-90 points below the short entry point mentioned.

If RMBS fails to rally a second strategy could also be shorting if the 18.87 50-week MA breaks with a stop-to-go-short at 18.81. If shorted at 18.81 stop you could put a stop-loss at 19.31 risking 50 points and looking at a 4-1 risk/reward ratio.

There is one possible additional benefit. The support at 16.00-16.50 is not very strong and if broken would give objectives of either 14.36 or 12.37.

This is a trade that is not only relying on the continued correction phase in the indexes but also on the failure to follow through on the breakout above 23.83 and the repercussions of a break of the 50-week MA. If the short instituted between 20.20 and 20.50 gets stopped out at 21.00 that would not mean this short opportunity is over. It is highly unlikely that RMBS will be able to get above the 20-day MA it recently broke (now around 21.58 as well as an important previous low at the same price.

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

URGI (Friday close 13.35)

Trying to cash in on the index break URGI seems to have clearly defined parameters with a bias toward the downside that makes it an attractive opportunity. After failing to get above a major resistance level at 15.05, URGI was one of the stocks that also was affected strongly by the drop in the indexes. URGI broke below the 20 day MA on Tuesday and below the 50-day MA on Wednesday.

On URGI it is very evident that the 14.01-14.40 level has been an important pivot point and short positions instituted within that range have a high degree of probability of success. There is some support at 12.95 but below that there is nothing until 12.07 and below that nothing until 7.22.

Additionally URGI had been in a downtrend after having failed in its attempt to test the 4-year highs at 20.78 with a rally up to 19.95 in November of 2006. After several attempts to go above 19.95 URGI broke aggressively in the week of 11/17/06 all the way down to a low of 12.07 on 1/26/06. The rally back up to the 15.05 level failed to generate any penetration to the upside and now with the break in the indexes URGI is once again under strong selling pressure.

On the daily chart there is strong resistance between 14.00 and 14.25 and several weekly closes between 14.25-14.39. Short positions can be instituted between 14.01-14.25 with a stop at 14.45 with a minimum objective of a test of the 12.07 level and if broken further drops to a possible low of 7.22.

Risk/reward ratio is a minimum of 4-1 with possible for more. My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).

MOT (Friday close 18.64)

MOT is a stock that began breaking down back in December 06 and recently after breaking below major support at 18.66 and dropping down to 17.89 was able to rally back up to major resistance at 20.00. Using the daily chart MOT has shown nearby resistance at 19.17 as well as both the 20 and 50-day MA's which are seen today right below 19.31.

Some support is found at 18.12-18.25, strong at the most recent previous low of 17.89, and then 16.20 and 15.60. Resistance is at 19.31 and 20.00.

The chart on MOT looks like a possible downside pennant which could project down near the 16.00 level. A rally up to 19.17-19.31 could be seen if the indexes rally next week and it would likely be a good area to short this stock. Stops should be placed at 20.10, or if a more sensitive stop is desired right at 19.50. Objective should be 15.60-16.20.

This trade offers a risk/reward ratio of at least 4-1 or more depending on where the stop is placed.

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