Failed Breakdown below Support

Throughout the first 10 months of 2004, the main stock market indexes were stuck in a sideways to slightly lower range. As such, ETFs could be both bought and sold short with equal odds of success. Eventually, all markets break out of trading ranges, but there is sometimes little warning of when that will occur. This short trade entry happened to coincide with the S&P 500 beginning to break higher out of its range in November, which pulled the Retail HOLDR (RTH) along with it (Table 10.4). Still, it's a great example of the importance of managing losing positions properly. Begin by looking at the daily chart in Figure 10.9, which shows the reason for the original short entry.

TABLE 10.4 RTH Trade Results

Short Sale of the Retail HOLDR (RTH)