Shorting A Momentum Stock

Last week Under Armour reported earnings and there was a solid short setup. Check out the video below where I discuss.

These were my thoughts on UA

  1. UA has had a huge run the past year and if the quarterly numbers disappoint many of the momentum investors involved will sell first and ask questions later. This means there could be selling pressure on the stock until it pulls back to longer term support areas where new investors are interested in buying.
  2. A lot of the buying was done between 98-100 leading up to earnings so a bounce to that area is where many people would look to exit their positions. If the stock fails in that area that will entice more sellers and it could lead to a move back down to 94 which is a key support level
  3. If the stock closes weak look for downside follow through on a swing trade to the high 80s (next long term support area)
  4. If UA bounces from the high 80s look for a retracement back to 94. What happens in the days following the bounce to 94 will give you a good idea if UA will resume its uptrend

Here are the thirty minute and daily charts that give you a picture of what happened following the meeting and in the coming days. As short term traders we are thinking about putting ourselves in the best position to capture a larger move whether that is intra-day or multi-day swing trade. One thing you don’t want to do is make the mistake of believing UA is a great longer term short simply because momentum players sold the stock for 1.5 days. It clearly bounced from the longer term support mentioned in the video, and buyers have re-asserted control above 94.

ua daily pre and post earnings ua 30 minute post earings

Each morning I outline the best risk/reward setups in our AM Meeting as part of Trader 90 which includes all of the trading tools developed for our trading desk in NYC. Find out more info here on how to get a free trial.


Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, options, forex and futures. He has traded professionally for 19 years. His email address is: [email protected]

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