No surprise, stocks are starting to break down again. With the market selling we’ve seen over the past week or so, a lot of stocks are breaking below key areas of support. However, these breaks simply provide new trading opportunities. One stock in particular that broke down yesterday would be that of Sotheby’s.
Sotheby’s is an auctioneer of authenticated fine and decorative art, jewelry and collectibles. Sotheby’s operations are organized under three segments: Auction, Finance and Dealer. Sotheby’s Auction segment functions principally as an agent by offering authenticated works of art for sale at auction and by brokering private sales of artwork. Sotheby’s also operates as a dealer in works of art through its Dealer segment, conducts art-related financing activities through its finance segment and is engaged, to a lesser extent, in brand licensing activities. Sotheby’s Finance segment provides certain collectors and art dealers with financing, secured by works of art it either has in its possession or permits borrowers to possess.
Before discussing potential trading opportunities, please take a look at the 1-year chart of BID (Sotheby’s) below with my added notations:
BID has commonly found support at the $30 level (green). At the end of September, BID broke that support and proceeded to fall down to $25 (navy). Since then, BID has broken back above the $30, went higher as expected, and found support at the $30 level again. Yesterday BID broke the $30 once more. The stock should be moving overall lower from here, probably back down to the $25 level.
The Tale of the Tape: BID has broken its level of support at $30 and the stock should be moving lower. A short position could be entered on a rise back up to $30 with a stop placed above that level. If the stock makes it down to $25, or breaks back above $30, a long trade could also be made with a stop below the level of entry.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT