Investors awoke to quite the rousing rally this morning. Apparently, the results of France’s first round of elections struck just the right chord with stock lovers. U.S. indices from the S&P 500 to the Nasdaq Composite are up more than 1% as of this writing.
Not all equities, however, are swept away in the bullish revelry. Some remain entrenched in downtrends, unable to pull out of the tailspin that has brought them so low. These are the candidates that are ripe for some short selling.
Some would argue the best stocks to short are companies already plagued by weakness. Those with nasty rain clouds looming overhead have a tendency to continue sliding into the deep.
Sometimes these clouds come in the form of deteriorating fundamentals. And sometimes it’s simply the Street turning sour on a once loved stock as it enters a vicious cycle of profit-taking. Either way, today’s selections boasts opportunity aplenty for traders looking to use today’s pop as an opportunity to find new stocks to short.
Behold, three stocks to short.
Stocks to Short: Lululemon (LULU)
Popular athletic apparel company, Lululemon Athletica inc. (NASDAQ:LULU), was crushed following its recent earnings announcement. The one-day whack shaved 23% off of LULU’s value. With the stock now handily submerged beneath all major moving averages, any and all rallies should be eyed with extreme skepticism.
LULU stock’s rebound attempt over the past month has taken on the form of a rising wedge. This bearish price pattern often sets the stage for another leg lower. Over the past three trading sessions, the stock has failed to breach its 20-day moving average. And today, with the rest of the market flying into orbit, LULU shares are down on the day.
If you’ve been waiting for a low-risk entry to short the stock, wait no longer. Short LULU with a stop loss around $55. The previous low of $49.40 is as logical a target as any.
Stocks to Short: Michael Kors (KORS)
We’re sticking with the retail theme with our next selection: Michael Kors Holdings Ltd (NYSE:KORS). The American luxury fashion company has had quite the wild ride since its 2011 initial public offering near $23. Initially, KORS stock was a favorite among momentum traders. And why wouldn’t it be? KORS enjoyed a rocketship rise to $100 before sentiment soured.
Since then, bears have dominated the stock. Its latest setback was a disappointing earnings announcement, which carried shares to a new 52-week low. The stock has spent the past two months building a symmetrical triangle. With the apex of the triangle looming, there’s a chance KORS is ready for another down-leg.
When short selling, it’s wise to wait for confirmation. For this stock, a break below the nearest pivot low of $36.38 should do the trick. Resistance near $38 is a good spot for a stop loss.
Stocks to Short: Ambarella (AMBA)
Ambarella Inc (NASDAQ:AMBA) rounds out today’s picks with a bear retracement pattern. The semiconductor stock made slid into a downtrend this month making a fresh low around $50. The past four trading sessions have seen a robust rebound in the stock bringing it back to potential overhead resistance near $55.
Now is the time for short sellers to watch closely: If AMBA stock sails through the 50-day moving average ($55), then I’d pass on this trade idea. But if bears step up to defend their turf and AMBA turns lower in the next few days here, this is a good spot to initiate bear trades.
Use today’s low ($53.67) as the trigger for short selling. The aforementioned $55 zone is a good stop loss to use if AMBA stock ends up triggering you into the trade.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.