I shorted HPQ on the Open at 43.70 but no for size. It is more than a point lower and I am reviewing whether I was a wuss, my intuition not to short with size was appropriate, or something else.

At SMB we make trading decisions based upon three factors: Reading the Tape, Intraday Fundamentals, and Technical Analysis. HPQ had fresh news that causes a stock to trend intraday so we were covered with our intraday fundamentals. Below 45 and 46 and HPQ was weak on our long term charts. On the tape the buyers won the battle at 43.50 but then hit a wall at 43.70.

I started my short position at 43.70. The move below 43.50 did not excite me as often on the Open a stock will find a point of inflection. The stock will go 20-30c above this point of inflection and then below. And all of this may mean nothing. HPQ went 30c above 43.50 on the Open so now 20c below I was still cautious of this downmove.

I am not a huge fan of trading HPQ. It is too thick for me to gain much of an edge from the tape. So 1/3 of my decision-making is compromised. When I do not love a stock I do not trade it with much size.

The buyers won the first batter at 43.50 so this wall at 43.70 could have been just the next level to get run over. This gave me pause to short for big size.

In the Premarket HPQ has bounced from 42.60. I most like to short stocks that are going down. HPQ was going up and found resistance on the tape. Not my favorite pattern to short.

HPQ touches a lot of prices. I could have shorted 43.70 for size, set stops for 76c, 81c, and 86c. Since HPQ does not trade cleanly it could have touched all my stops and then found lower ground. This was another reason not to short with size.

When HPQ started trading lower it did not move off of levels quickly. When I see this in a stock that stock is more likely to reverse the trend it has started. Meaning when HPQ started a downtrend below 43.50, since it was not trading down quickly this made it more likely to reverse. With this pattern I do not feel comfortable trading with size.

So after my analysis on the open I should have traded HPQ with a little more size but I was correct not to load up for me. And I say this even as HPQ went down a point.

Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)