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3 Bear Trades for a Lackluster Summer

Sellers are dominating in FDX, IBM, and DIA.

By Tyler Craig, Tales of a Technician

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Source: Shutterstock

Stocks opened this morning with yet another down gap. These weekend rollovers are becoming commonplace and reflective of a weak market. Perhaps it’s trade war jitters continuing to sour market sentiment. Or, maybe it’s simply a function of the calendar. Summertime trading is upon us, and the indexes are now directionless.

Either way, bear trades are having their day in the sun. How long their fun lasts is anyone’s guess, but I say short sellers best make hay while the sun is shining. Fortunately, my weekend scanning revealed a handful of slippery stocks that remain vulnerable to further downside.

Today’s selections offer a diversified list for food-seeking bears. One is a transportation stock. Another calls technology home. And the third allows you to make a broad-based bet on continued bearish behavior from large-caps.

Let’s dig in.

3 Bear Trades for a Lackluster Summer: FedEx (FDX)

3 Bear Trades for a Lackluster Summer: FedEx (FDX)
Source: OptionsAnalytix

Ever since failing to dazzle the Street with its quarterly earnings release last month, FedEx (NYSE:FDX) shares have been a waterfall. The dive has been relentless, heavy and unfazed by many potential support zones.

Bears have taken complete and total control of its price chart. The ailing transport stock shattered the 200-day moving average and a crucial floor at $230. And with that, any bounce attempts are suspect. Seven monster distribution days accompanied the slide, suggesting institutions exited the stock with aggression.

If you’re willing to wager FDX fails to reclaim $240 by August expiration, then sell the Aug $240/$250 bear call spread for $2.

3 Bear Trades for a Lackluster Summer: IBM (IBM)

3 Bear Trades for a Lackluster Summer: IBM (IBM)
Source: OptionsAnalytix

Our next target is IBM (NYSE:IBM). IBM boasts a more traditional downtrend complete with numerous lower pivot highs and lows. Its 200-day, 50-day, and 20-day moving averages are all descending, which means sellers are completely dominating across every time frame.

Last week’s plunge carried the stock to fresh 52-week lows. But don’t think IBM stock can’t go any lower. It fell as far as $116.90 in early 2016, so it’s not as if we’re in unseen territory.

The next earnings release looms on July 18, but if you think IBM will be unable to reclaim the high ground then sell the Aug $145/$150 bear call for around $1.10.

3 Bear Trades for a Lackluster Summer: SPDR Dow Jones Industrial Average ETF (DIA)

3 Bear Trades for a Lackluster Summer: SPDR Dow Jones Industrial Average ETF (DIA)
Source: OptionsAnalytix

Our final pick offers a broad-based way to bet on continued weakness in large-caps. The SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) is Wall Street’s go-to benchmark for measuring all things large-cap, which makes it one of the most direct ways for wagering on their fate.

DIA has fallen 5% since June 11, breaching every single major moving average in the process. If you’re a believer that weakness begets more weakness, then DIA is a far more attractive pick than the Russell 2000 Index or the Nasdaq Composite. Its technical posture has deteriorated far further than theirs.

Because we may be in for a choppy summer, I prefer to sell out-of-the-money bear call spreads instead of going for the jugular with a put buy. Bear calls position us to bank on time decay while DIA continues to flounder.

Sell the Aug $250/$253 bear call spread for 65 cents.

As of this writing, Tyler Craig held bullish options positions in FDX. Want more education on how to trade? Check out his trading blog, Tales of a Technician.


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Article printed from InvestorPlace Media, https://investorplace.com/2018/07/3-bear-trades-for-a-lackluster-summer/.

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