With the major averages falling through major technical support levels — the 15,000 mark on the Dow Jones Industrial Average and the 50-day moving average on the S&P 500 — and no resolution to the fiscal fight in Washington forthcoming, now’s the time for traders to start looking for opportunities on the short side.
More and more are appearing. Stocks within the S&P 500 are falling out of uptrends at a pace not seen since the market swoons in June and August. Cyclical, economically sensitive stocks are rolling over at a pace not seen since June. Capital is flowing into safe haven assets like precious metals and Treasury bonds.
Here’s a look at three Dow Jones stocks that look ready to slide lower — and pull the rest of the market down with them.
Click to Enlarge Caterpillar (CAT) shares are dropping out of a multimonth consolidation pattern going back to April. More dangerously, this pattern is a continuation of a narrowing trading range that started in early 2011. The support line drawn above mirrors the stock’s 200-day moving average.
Today’s breakdown represents the first time CAT has moved below this level since early 2010.
In response, I’m adding a short position in CAT to my Edge Letter Sample Portfolio.
Click to Enlarge Energy giant Chevron (CVX) is watching as its shares fall below their 200-day moving average for the first time since December as it tests lows set in April, June and August.
CVX shares are now approaching their 50-week moving average — a level that hasn’t been breached since late 2012.
International Business Machines
Click to Enlarge Most importantly, the most heavily weighted stock in the Dow Jones Industrial Average is in free fall. International Business Machines (IBM) has spent the last two years sliding sideways near $200 a share, which an excursion towards $215 back in March that helped lift the Dow Jones for 10 consecutive days that month.
Now, IBM’s outsized influence (due to its high share price and the Dow Jones’ price-weighted construction) is working in reverse.
How severe is the decline? On a weekly basis, we’re looking at the strongest downtrend in IBM since late 2008.
That’s right. For the most important stock in the most closely followed stock market measure, we’re in the midst of a financial-crisis style selloff.
Check out Anthony’s new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to InvestorPlace readers. Click the link above to sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.