I’ll share a neat little strategy I use all the time to short big runners. It goes like this:

- A stock gets news and momentum, runs parabolic for couple of days. 100%+ for us to have enough downside.

- Then it fades and falls big one day. (I’m most likely short that day :) )

- In a little while, it starts running big again. But this time on little to no news. It’s usually a combination of short squeeze, pumping, daytraders scalping, bagholders averaging down and traders who missed the last run buying, not wanting to miss the train again.

- Now you have a stock that already had its run on news. If it ran to point A on news and dropped like a rock to point B, this second run can’t usually go past point A. Unless, of course, there is an additional catalyst in the form of PRs etc.

- In fact, this second run usually respects fib levels 50%, 61.8% etc. You don’t really need to do fib retracements though, eyeballing is good enough. Just watch where it starts losing steam.

- Then you go short around these points. A swing short, even. Reason is simple: There are lots of traders that got burnt buying at the top. They will be happy to sell into this second bounce, creating nice resistance. Also, since stock dropped big after initial run, now traders are more hesitant to buy into this spike.

- As a result, this second spike is merely a dead cat bounce, not as great as the first spike. Also, now we have a range and chart of this stock around these levels, unlike the first one. We’re no longer shorting into the unknown.

- Remember that you’re still shorting a spike, which is risky business. You should still exhibit good risk management and find good entries. Described here http://bit.ly/7v3REl

Of course, there will be exceptions and you should be careful about your stop losses. Especially if this second run takes out first run’s high, cover your short and run to the hills.

But I’ve applied this technique over and over again and it works like a charm. Recent stocks that exhibited this behavior and I profited greatly are NLST, SNSS, ATHX and just yesterday, PEIX. There were many more, these are the first ones I can remember.

Trading is simple like this. Don’t overcomplicate it. Good luck.