A Post-Halloween Feast

Both BABA and SHAK are two pretty good examples today of the danger in assuming a downtrending stock has bottomed and has commenced a new uptrend. 

Famed short-seller James Chanos is out with bearish commentary on BABA today. But the stock already had shown signs of struggling at the $85 level after a steep rally into Halloween. Moreover, the daily chart of BABA is still sporting a declining 200-day simple moving average, rendering any rallies suspect until proven otherwise. 

And in the case of SHAK, here, too, we have another downtrending chart which became overbought after rallying into Halloween. In fact, Shake Shack rallied in earnings last night, as the stock initially rose after hours by a good deal. 

However, today the stock is flipping back to red, again indicative of the elevated risk in assuming a bottom to a damaged chart, particularly when rallies become overbought (note price puncturing the upper Bollinger Band on the SHAK daily, below). 

Even if, for argument's sake, you still maintain BABA and SHAK have put in good lows, the risk-to-reward ratio to buying them in their current technical setups is likely to be more favorable after a further pullback. And, of course, their overarching downtrends may also reassert themselves for a post-Halloween bear feast. 

On the other side of the tape, a few relative strength long ideas are holding up well in this mixed market today. I will cover them for Members in my usual Midday Video.