The Deviant Standard

ALNY, our weekly stock pick as a short play, has continued to wedge itself deeper into the very long-term triangle we identified over the weekend leaving this stock limited time to make a decision about which direction it wants to go in.  Volume continues to show distribution and confirms what the shape of the triangle suggests: the next move will be down. 

ALNY did show sell signals as it bounced from the daily 20 SMA and that could have been an entry.  However, we’ll stick with a break of horizontal support suggested over the weekend.  On a solid break below that level ALNY should have room to run.

There were many good short side opportunities last week, but many of them have already started to run and we don’t want to chase.  Hopefully you caught some of them!  If not, there are more good setups this week.  ALNY is one to watch to see how it develops.   From the weekly chart we can see that this stock is testing horizontal support established back in 2007 as well as descending trendline resistance.  One of these will have to give way soon since the two are about to cross.  The challange is figuring out which.

The daily chart provides some clues.  First is that volume has been heaviest on the downside for the past several weeks, with bounces occurring on light volume.  The most recent bounce from trendline support was contained by the 20 day SMA and both our CCI-based and stochastics-based snapbackindicators are showing the likelihood of a snap back down.  If it materializes, then trendline support should break and ALNY should go to new multi-year lows.  This is consistent with our overall market forecast. 

If you are interested in looking for short opportunities in ALNY, there are at least two ways to play it:

1. Short it against the 20SMA with a stop above either June 3rd highs, the 20 SMA, or the descending trendline.  The risk here is a that a big pop takes you out with some slippage. 
2. Short a break of horizontal trendline support.  The risk here is a big drop that leaves you behind.  If so, you might want to wait to see if it retests support from below. 

ALNY has very high short interest, so a pop could be big.  Be careful!  It may also be hard to borrow from your broker.  Options do trade on ALNY so puts are an possibility, but they are thin.  The Deviant Standard should have many more good short ideas this week.