Stocks are headed for another move lower after China’s trade data disappointed the Street and added another layer of uncertainty to the market. The move will break the S&P 500 below another critical level of support at the 2,120 mark, causing the technical traders to start looking for stocks to trade to the downside as well as protection for the pullback.
Today’s Three Big Stock Charts take a look at Progressive Corp (NYSE:PGR), American Express Company (NYSE:AXP) and the ProShares UltraShort S&P500 ETF (NYSEARCA:SDS) as charts worthy of short-term bear market trades.
Progressive Corp (PGR)
Progressive released earnings results that bested analyst expectations this morning. Better than expected earnings-per-share and revenue data has PGR shares trading 2.2% higher, but the chart suggests that there’s a short-term bearish play in the cards.
Progressive’s rally takes it right to its 200-day moving average, which has been in a long period of transition into resistance. Currently, this trendline sits at $32.50 and should be seen as staunch resistance for PGR.
Progressive shares are trading above their declining 50-day trendline this morning, but a failure to hold this level over the next two trading days will signal that it is on for the short sellers and other bears that will flock to the bearish trades.
Compounding things is the fact that a move back into the normal price distribution will require a break back below the 50-day average. This suggests that the probability of a breakdown back to the $30 mark is highly likely for PGR.
American Express Company (AXP)
American Express is meeting the definition of a parabolic move, just the wrong way. Bearish traders and short sellers love the AXP chart right now.
American Express shares broke through technical support last week and back into a bear market trend. This was followed by a break below the stock’s lower Bollinger Band, which has now accelerated the selling of AXP shares through what had been support at $60.
Momentum has been building to the downside for American Express for more than a month and shares are just now reaching oversold levels for the short-term. From here, traders should expect AXP stock to move back towards the next level of chart support, which resides at $50 and represents round-numbered support and the early 2016 lows.
ProShares UltraShort S&P 500 ETF (SDS)
Finally, a big stock, or ETF, chart that you can buy to counter the market’s continued weakness. The ProShares UltraShort S&P 500 ETF offers traders and investors alike a way to hedge market decline as the shares return two times the inverted returns of the S&P 500. This means SDS shares gain 2% for every 1%-drop in the S&P 500 Index.
With the S&P 500 ripping through technical support levels lately (three within the last week), wise investors are hedging their portfolios by using either volatility hedges (as we talked about in this column last week) or short ETFs.
The S&P 500’s 50-day moving average has finally transitioned into a bearish pattern, suggesting that the index is set to struggle for an intermediate-term period. In addition, the tight trading range that had held the index at bay has now given way on increased volume. All of this suggests that the market will finally get the 5% to 10% pullback that has been necessary to reset prices for some time.
Current targets for the S&P 500 are 2,017 (a 2.5% decline) and then 2,000 (about 5.5% decline). SDS shares are set to gain 5% and 10% respectively on these moves to S&P 500 support. Investors that are using SDS shares should pay attention to the S&P 500 moves and support levels identified here, instead of using the technicals of the SDS shares themselves.
Rarely do we get a chance to hedge the market like a pro, but the recent technical breakdown in the S&P 500 suggests that now is the time — happy trading!
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.