The market’s sluggish behavior of late has bears beginning to perk up. Their trigger fingers, long since itchy, are in need of a target. And while seeking short trades when the S&P 500 is camped at all-time highs might seem a fool’s errand, I found the endeavor quite fruitful.
I suppose it’s because the large-cap-laden S&P 500 fails to tell the whole story. If you dive beneath the surface, you’ll find a market of stocks teeming with variety.
Bears seeking prey will find there are short trades aplenty to consider. Some of these stocks are plagued by poor earnings. Others reside in sectors that have long since fallen out of favor. Regardless of the culprit, today’s selections all boast downtrends with low-risk setups.
Behold, three of the best trades for bears on the street.
The Best Short Trades: IBM (IBM)
Click to Enlarge
International Business Machines Corp. (NYSE:IBM) kicks off today’s short trades with a symmetrical triangle pattern ripe for the picking. The past few months have brought pain for IBM shareholders. Since mid-February, the stock has lost 17% of its value. Much of the damage was inflicted following IBM’s dismal showing on the earnings front.
Since finding some support at $150, IBM has been floundering. The past three weeks of churn have allowed the descending 20-day moving average to catch-up. In the process, the stock has worked through some of the oversold conditions that arose following its steep plunge.
At this point, IBM looks ready to break down anew. A breach of its recent trendline (currently at $151.50) is as good a trigger as any.
The Trade: To capitalize on what could be one of the bears’ best trades, buy the Jul IBM $155 puts for around $5.50
The Best Short Trades: Nike (NKE)
Click to Enlarge
Selling rallies is the name of the game for exploiting downtrends. Indeed, bears everywhere are always on the lookout for these retracement setups.
Nike Inc (NYSE:NKE) boasts just such a pattern right now. Its descent has been accompanied by a declining 50-day and 20-day moving averages. Both have acted as resistance multiple times in recent months.
And right now, NKE stock is wrestling with the 20-day and losing. Yesterday’s doji candle suggested a reversal was imminent, and if today’s drop sticks, it appears the game is on.
The Trade: This is about as clean a short trade as you’ll find. If you think Nike will drop back down toward $51, buy the Jul NKE $52.50 put for around $1.50.
The Best Short Trades: Disney (DIS)
Click to Enlarge
Walt Disney Co (NYSE:DIS) rounds out today’s trio of short trades with a bear flag pattern.
Since bottoming out near $105 earlier in the month, DIS stock has been clawing its way back toward the descending 20-day moving average.
If the distribution days are any indication, sellers have really sunk their teeth into Mickey’s flagship. These high-volume down days suggest quite the aggression from bears and serve as a warning sign to any and all buyers to steer clear for now.
The Trade: With DIS rebounding in early Thursday morning trading, it is important to wait for a break of today’s low ($107.17) to signal the completion of the bear flag pattern and the beginning of Disney’s next descent. If this price level is breached, consider grabbing the July $110 puts to capitalize.
As of this writing, Tyler Craig held bearish positions on NKE.
