Let’s be honest. Profitable bears are becoming a rare breed these days, what with new all-time highs gripping stocks across the land and optimism flooding the Street. But not all bear trades are lost.
Some still can be found in individual companies plagued by poor earnings. Just because we’re in the midst of a bull market for the ages doesn’t mean those few companies daring to disappoint the Street aren’t still taken behind the woodshed. Or, for that matter, those residing in the few sectors boasting relative weakness.
Moreover, not every sector is participating in the bullish festivities with equal vigor. Recent weakness out of retail and energy is creating a few other interesting opportunities for traders still on the lookout for low-risk bear trades.
Whether you’re looking to diversify your growing brood of bullish positions with a few bear plays or you’re simply a bear in search of something to sink your teeth into, today’s trio is worth a look.
Best Bear Trades: Baker Hughes (BHI)
Baker Hughes Incorporated (NYSE:BHI) appropriately tops our list with a topping pattern. The Houston-based oil field services company has enjoyed a robust recovery amid rising oil prices over the past year and a pending merger with General Electric Company (NYSE:GE).
From trough to peak, we’ve seen BHI shares climb an impressive 83% before recent selling pressure took over.
The turn of the year passed the balance of power from bulls to bears. Since then, BHI stock has receded below its 20-day and 50-day moving averages. Over the past month, we’ve seen a low base pattern form that is threatening to break down as I type.
Watch for a breach below the $60.50 support level, then sally forth with a bearish trade.
If equity is your weapon of choice, short the stock. If you’re a derivatives dabbler, then I suggest buying Apr $60 puts for around $2.20.
Best Bear Trades: Michael Kors Holdings Ltd (KORS)
The retail sector has struggled notably this year. Plagued by relative weakness, many discretionary stocks have sat the recent bull run out. Chief among them is Michael Kors Holdings Ltd (NYSE:KORS).
Once upon a time, shares of the luxury fashion company sat around $100. Now they’re perched on a precipice at a lowly $38.
A long-term view of KORS stock chart reveals significant support at $36. A break below that, and the stock will probably return to its IPO price of $23.51.
There and back again in a little over five years.
Its latest setback came in the form of some post-earnings whackage. Last Tuesday, Michael Kors tumbled 11% after daring to disappoint the Street with lackluster earnings.
Since then we’ve seen the stock rebound slightly forming a classic bear retracement pattern. If you think the pain continues, now is as good a time as any to initiate bearish plays.
Stock lovers could short KORS shares if they fall below today’s low of $37.84. Options enthusiasts could sell the Mar $40 calls for 60 cents instead. If Michael Kors remains below $40, you’ll keep the 60 cents. If it sits above $40, you will be obligated to short the stock at an effective cost basis of $40.60.
Best Bear Trades: Verizon (VZ)
Verizon Communications Inc. (NYSE:VZ) rounds us out with a chart reflecting the fact that this telecom is on the ropes following disappointing earnings. Indeed, last month’s post-earnings plunge reversed an otherwise solid uptrend for VZ stock.
With shares now submerged beneath all major moving averages, the bears hold the upper hand. As with any downtrend, rallies are suspect. Last week’s three-day bounce followed by today’s drop illustrates said point nicely.
The level to watch moving forward is $48. A break of that support level, and VZ could very well return to its 52-week low of $46.01. With this morning’s strong rebound in the stock, it may be a few days before this setup triggers.
Once again, stock traders should look to short shares, while options traders could grab the Apr $49 puts.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.