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Wed, April 1 at 7:00PM ET

3 Big Stock Rallies to Short While They’re Ahead

These three downtrends boast low-risk entries for short sellers

The Dow Jones Industrial Average officially eclipsed the $22,000 level last week for the first time in history. Papa Dow is also up nine days in a row amid what can only be described as a blue-chip love affair. With the market’s bullish undertones, finding stocks to buy is a cinch these days. It’s discovering the best stocks to short that has been tricky.

3 Big Stock Rallies to Short While They're Ahead
Source: Shutterstock

That, friends, is where we’ll focus today. After a thorough chart session, I’ve found a few such undesirables that have fallen out of favor. They all boast stock rallies just begging to be sold.

Down-trending stocks that have climbed multiple days offer low-risk shorting opportunities. If you place your stops just above resistance, the potential loss is minimal. And if the stock falls anew, the potential gain is substantial.

Check out these three big stock rallies to short while they’re ahead.

3 Big Stock Rallies to Short: Domino’s Pizza (DPZ)

3 Big Stock Rallies to Short: Domino's Pizza (DPZ)
Click to Enlarge
Source: OptionsAnalytix

Domino’s Pizza, Inc. (NYSE:DPZ) has been a mainstay among momentum stocks. DPZ’s ascent has been as consistent as it has been glorious.

But with its latest earnings slip, there may be trouble in the kitchen. DPZ suffered its largest weekly decline in years after daring to disappoint the street.

The volume that accompanied the descent was enormous. We’re not talking about a slight drizzle of profit-taking here. It was a deluge of distribution. And that leads me to believe that DPZ stock could remain under pressure. It has since rallied back to its declining 20-day moving average which should act as resistance.

The Trade: Short DPZ shares on a break below Friday’s low of $195.40.

3 Big Stock Rallies to Short: Akamai Technologies (AKAM)

3 Big Stock Rallies to Short: Akamai Technologies (AKAM)
Click to Enlarge
Source: OptionsAnalytix

Akamai Technologies, Inc. (NASDAQ:AKAM) shares tagged a new 52-week low last week. And that’s saying something. While the rest of the tech sector is basking in all-time highs, AKAM can’t get out of its way.

The latest setback arrived in the form of disappointing earnings. This is the third quarter in a row where the stock has plunged following weaker-than-expected corporate results.

Last week’s rebound was a dead-cat bounce, nothing more. It allowed Akamai to work-off some of the oversold conditions which makes it a much better stock to short here. AKAM stock has already fallen below Friday’s low, so its next down-leg has already begun.

The Trade: Short AKAM stock with a stop loss above the 50-day moving average ($49.40).

3 Big Stock Rallies to Short: Union Pacific (UNP)

3 Big Stock Rallies to Short: Union Pacific (UNP)
Click to Enlarge
Source: OptionsAnalytix

Union Pacific Corporation (NYSE:UNP) rounds out today’s trio of stock rallies to short with a bear pennant pattern.

UNP stock recently fell below its 200-day moving average for the first time this year. The culprit for its downturn was the same as its predecessors — earnings. Or, more accurately, a poor earnings report. Heavy volume accompanied the reversal adding urgency to the move.

Over the past two weeks, UNP stock has consolidated. The neutral action is allowing the 20-day moving average to catch-up. With the stock beneath all major moving averages, sellers deserve the benefit of the doubt here. While we may meander for a few days yet, a break below the low of the pennant is a shortable event.

The Trade: On a breach of $101.50, short UNP shares. Consider placing a stop-loss above $104.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

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