Ready, Aim, Fire! It’s time to pull the trigger on Smith & Wesson (SWHC). Here’s your trade. (November 18, 2016)
SWHC RGR SWHC
I want to look at Smith & Wesson ( NASDAQ:SWHC ) here. I think this is a good short. I never would have shorted this up until this breakdown. This is kind of the EVOLUTION of an uptrend reversal. About 20 percent of the stock, 20 percent of the float is short, and that is fine. That is higher than average, but it is not so high that you think that this is going to be a short squeeze. But if we look here at the weekly chart, you know what they do, it is a firearms company, though they do more than that; but the point is, this has been moving up for quite a while so it is definitely, I won’t say over bought, lets just say well known. Then you get a move here to about $30.00 and then another one here over the course of this last year. So it is kind of had two tests here of $30.00, then a pull back to the 200-day moving average. It is a GREAT buying opportunity; nice move to the upside, and then here comes Wednesday, November 9th, when the election results are in.
So what does that mean? The market thinks, “Okay, well the enthusiasm for buying firearms is going to wane, because there is not going to be a lot of second amendment talk.” Wherever you fall into that is irrelevant to me, I am just talking about the stock. The point is, this is a KEY change in the stock, in the behavior of the stock. Support here, support even here, and here, and here; huge support at the 200-day moving average. So, “Oh my gosh! It is great!” But when this breaks down and you KNOW that there was no news on Smith & Wesson ( NASDAQ:SWHC ). You know that the reason that this stock broke down was because of the unexpected result of the election. That is why, you can’t think of another reason, you shouldn’t think of another reason because that is why.
So why am I even talking about this stock? That was then this is now. I will tell you why, because there is not that much price difference between ‘that was then’ and ‘this is now’. I think this is a really, really good setup for a short. Because you will see stocks do this type of thing, up and down, here we get the double top, test of the 200-day moving average, it is all good. Oh, it is a lower high relative to that. A breakdown. Oh my gosh, the wheels have come off the wagon. This is going to go straight to zero.” A rebound here.”And then as the stock moves up you start thinking, “Okay, everything is good. It is all good. Oh, we’re going to be fine.” The next thing you know we are going to be right back up here. This was a big fakeout. And besides that after this low isn’t it obvious that the stock found support and it is going to do JUST what it did last time? And that is, go right up to here.
I say, “I don’t think so” and here is why: Want is the catalyst? There is EVERY catalyst for getting out of this stock. There is every catalyst, in my view, for shorting this stock. The 200-day moving average is up about 7 percent from where this stock is now. I think you can short this stock right here, and then you have got to protect it, you have a buy stop. That is if the stock rises above $26.00 or so, somewhere around there, you want to get out of the stock. Because the last thing that you want to be doing is getting caught in some kind of a short squeeze. Just think about it, based on politics right now, any GOOD news for the firearms industry is BAD news for Smith & Wesson ( NASDAQ:SWHC ). Any BAD news for the firearms industry is GOOD news for Smith & Wesson ( NASDAQ:SWHC ). So I really don’t see any catalyst for this stock to move higher. I think this is about as close to a screaming short as you get.
Rugar ( NYSE:RGR ), not a good pattern, not like Smith & Wesson ( NASDAQ:SWHC ), which had gone up so much more. But this isn’t giving you an opportunity to buy either, “Oh, I am getting this thing on the cheap, because it just rebounded off support.” No. You want to stay away from this. I think you want to short Smith & Wesson ( NASDAQ:SWHC ). But I have got to tell you, you have to keep a buy stop back above the 200-day moving average. It would make me feel bad to see you short the stock, something happens, the stock goes up to $35.00 and you are wondering what happened to the Fitzpatrick’s short idea. So protect your risk, but I think you are going to do really well on that.
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