3 S&P 500 Stocks to Short Now! (COST NKE HD)

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Consumer stocks - 3 S&P 500 Stocks to Short Now! (COST NKE HD)

Source: Mike Mozart via Flickr (Modified)

(Editor’s Note: This story has been amended to reflect that Costco is not part of the Dow 30.)

The S&P 500 Index is no dog, but consumer large-cap stocks Costco Wholesale Corporation (NASDAQ:COST), Nike Inc (NYSE:NKE) and Home Depot Inc (NYSE:HD) are acting like technical mutts and ready for shorting. Let me explain.

3 Dow Jones Stocks to Short Now! (COST NKE HD)
Source: iStockphoto.com

What’s wrong with these consumer blue chips? Are investors in COST, NKE and HD, businesses which live and die by the consumer, betting these stocks will be among the first to feel the impact of tighter Federal Reserve policy? As the market attempts to be a forward-looking instrument for the economy, it’s certainly plausible.

And given this market mechanism, COST, NKE and HD investors may have additional reasons to be wary. This Wednesday afternoon, the Fed will conclude its September FOMC meeting. But will there be a rate hike?

Fed futures aren’t betting on it as the chance for an increase is estimated at just 12%. Considering how poorly the market has priced in monetary action this past year, the Brexit vote and even the likelihood of Trump being where he is today, these consumer large-cap stocks are warning investors to get ahead of the curve.

Let’s now take a closer technical look at COST, NKE and HD, as well as limited risk options strategies for each of these S&P 500 stocks so investors can position with limited risk and short these names more effectively, right now!

Consumer Stocks to Short #1: Costco (COST)

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Click to Enlarge
Source: Charts by TradingView

Shares of Costco have quickly moved from a favorable, high and tight or handle pattern while demonstrating relative strength, to a position of relative weakness over the past month.

Technically, COST is holding the 62% support level, but the sharp reversal lower (which has also lost the key, longer-term 50 and 200-day simple moving averages) implies not shopping until further dropping in this S&P 500 stock.

Checking the options board, the Oct $149/$145 for a dollar is attractive. Earnings are in late September and this limited risk spread cuts down the risks associated with options Greeks while maintaining a catalyst to push shares lower and maximize the vertical’s return potential of 300%.

Consumer Stocks to Short #2: Nike (NKE)

091916-nke-daily-stock-chart
Click to Enlarge
Source: Charts by TradingView

Currently, NKE is consolidating in a tight pennant or flag pattern. Because the quiet price action follows a break below the 50-day MA, the ball is in the bears’ court.

Reviewing the Nike options board, the Oct $54 put for $1.26 is a decent looking position for bears to consider.

As with Costco, NKE earnings are in late September, but the combination of a more mature bearish chart and affordable premiums have sparked our interest in a more offensive play with more open-ended returns afforded by the long put position.

Consumer Stocks to Short #3: Home Depot (HD)

091916-hd-stock-chart
Click to Enlarge
Source: Charts by TradingView

The provided weekly chart of HD shows a slanted triple top has received bearish confirmation with a more recent breakdown of Home Depot’s uptrend line dating back to 2015’s flash crash.

What’s more, HD’s technical failure has coincided with the stock penetrating its 200-day MA and moving into bear territory. With Fibonacci support levels still well below current prices, it’s time for bears to make a home in HD stock.

For an options strategy in this S&P 500 stock, the Oct $124/$120 bear put spread for 70 cents is interesting enough.

Unlike with COST and NKE, HD doesn’t report until November. Considering HD stock is the strongest of the three, approaching HD with a less costly, but still efficient vertical makes sense as a way to position as a limited risk bear in lieu of an earnings catalyst.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/consumer-stocks-cost-nke-hd/.

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