Okay, now don't start sending hate mail my way just because I think it might be time for a break in the run-up for technology markets.
I am a long-term bull, but there are times when I believe taking profits off the table can create short-term opportunities for those who know where to look.
And that's exactly what I intend to do today.
Indeed, the trade I'm about to propose is going to provide a potential 200% return at an investment price that's downright cheap…
Technical Indicators Say Techs Are Cheap
A lot of the pundits say that tech stocks are overdone, like an overcooked steak left on the barbeque grill…
But why listen to the TV pundits? They are wrong time and again but take on credence merely through repetition.
So again I ask why listen to them? Instead, let's look at the real story.
I do believe tech stocks are oversold, and the accompanying chart shows you why.
A quick look at the PowerShares QQQ Trust (Nasdaq: QQQ) tells us that since the highs of March, the Nasdaq has descended in a lower-high and lower-low fashion.
In other words, as the highs are getting lower, so too is the volume leading up to those highs, indicating for the short-term that the Nasdaq is out of gas. If we did break down below the red support line, then I expect that range to become a target right around the lows of the year at $99 per share.
That would represent an 8% move lower from the current price of $107.50, while still maintaining a long-term bull market.
Now let me repeat that I am not looking for an all-out drop to the downside, just a modest move of around 8%.
Elections campaigns are starting to heat up, and this is the season where less news comes out of Washington. The less Washington changes, the better for stocks.
But I do believe that we need to do some profit taking.
So how do we make money when we expect a move to the downside? Let's talk about our profit moves right now.
Our Money-Making Opportunity Is Here
Shorting is a process where the trader will borrow shares from a firm and sell them to open a bearish position on the open market. A short-seller attempts to make money buying back the shares at a lower price, thereby realizing a profit.
A first action to take reflecting this would be for the QQQ to fall. But in this situation, we can merely sell short the QQQ at the current price of $107.50 per share.
If the stock falls to $99 per share, the trader may use this as a target and purchase the shares back at that price.
If that happened, we would see an immediate profit of $8.50 or $850 on 100 shares.
This comes with risk though, as short selling has unlimited risk if the price of QQQ actually moved up instead of our expected fall.
About the Author
Tom Gentile is widely known as America's #1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Now, he's diving into the biggest market in the world - one that almost no one has heard of before.