The latest episode in our ongoing market drama was a doozy. A respectable price rally took root in the land of large-cap stocks, carrying the S&P 500 directly into overhead resistance near $1990.
And then the bears returned to deliver a massive upset. Wednesday’s down move was swift, complete and utterly depressing for all participants hoping for a quick recovery from the recent market crash.
It’s as if Dikembe Mutombo stepped right out of his Geico commercial to swat down the rally attempt.
“No, no, no!”
As a result of the rejection, large-cap stocks aplenty suffered strong bearish reversals upending their recovery efforts. But not all large caps suffered equally. A few poor equities have attracted the bears’ ire and experienced outsized drops during Wednesday’s trading session.
Here are three resistance rejects that are good short candidates going forward.
Large-Cap Stocks to Short: Disney (DIS)
Disney (DIS) stock seems to have lost its magic. Blame it on last quarter’s earnings announcement, which delivered an epic down gap. And of course, the recent China crash certainly didn’t help either.
The recovery was starting to look promising until yesterday’s sharp rejection. It’s not a coincidence that the bears finally stepped up to defend their turf near a prior support level. Unfortunately for DIS shareholders, the charting adage of old support becoming new resistance spoiled their party.
What’s more, the 200-day moving average is sitting right at the $105 zone, providing yet another potential resistance level that is weighing on Disney.
If you think DIS stock continues its weak ways, consider shorting the large-cap stock here with a stop over $105.
Large-Cap Stocks to Short: Microsoft (MSFT)
Next on our list is Microsoft (MSFT). After rebounding 10% from its recent lows, the tech giant has suffered a sound defeat. The $44 zone is proving to be an impenetrable ceiling of resistance.
The action in MSFT stock is a great example of stock prices having memory. The $44 price level has acted as support and resistance multiple times this year. Unfortunately for Microsoft fans, it’s currently representing the latter.
Wednesday’s trading session delivered a significant outside day. It’s an old-school bearish reversal pattern of significance where prices rallied higher in the morning only to reverse and close sharply lower by day’s-end.
The current perch of MSFT is an attractive one for bearish plays. It sits soundly below all its major moving averages and is just beginning to fall off of resistance.
Among large-cap stocks, this one’s an obvious short with a stop loss over $44.50.
Large-Cap Stocks to Short: MasterCard (MA)
Rounding out our trio of rejects is MasterCard (MA). It’s actually the healthiest of the three large caps but suffered a sound defeat yesterday nonetheless.
The recent rally was sufficient in carrying MA stock back above its 200-day moving average but it has yet to climb back above its shorter-term moving averages. What made Wednesday’s dive particularly worrisome was the heavy volume. Someone big wanted out of the stock, and they weren’t afraid to take prices lower in the process. Continued distribution may well continue to weigh on MasterCard.
If you think lower prices are in the offing, this is as good a spot as any to initiate bearish plays on MA. Short the stock with a stop loss over yesterday’s high near $94.
As of this writing, Tyler Craig owned neutral option positions in DIS.