Page 393 - THE MARKET WHISPERER

THE MARKET WHISPERER 38 9
Example of Shorting in Moody’s Corporation, MCO

I executed a short in Moody’s below $20.10 [1]. At this point, the stock
was looking good for further lows. It started with a gap down of 2% and the

path seemed paved all the way. The market also started with a gap down.
Of course I was concerned about the gap closing (i.e. the market trending
up), but the market had been weak for several days and I estimated that

chances were good it would continue to drop. I was wrong. The stock

dropped to $20, encountered round number support (which we have

already discussed) and the market then moved against me. In other words,

it trended up towards closing the gap. In just a few seconds, Moody’s
changed direction with the market, and rose to $20.37 [2]. Ouch!

What does one do in such cases? Where is the stop? As we have learned,

a stop loss should have been determined at the outset, whether it is

actually placed into the trading platform or kept in mind. When you expect

a stock to break and crash quickly and powerfully, but in fact it moves ten

cents against you, understand that something not good is happening. In

such cases, the stop loss should get you out of the position at between ten

to fifteen cents from the entry point.
Two scenarios now become possible. One is that you exited at the

correct stop and this is precisely what should have happened. The other

is that for various reasons you did not exit on time, and now, in contrast to

your plan, you are absorbing a larger loss than anticipated. If you got swept