Considering the state of the market, I probably could have titled today’s gallery “sell everything on a bounce,” but I’m in a mood for specificity.
The backbone of the bull market has been shattered, and broken trends now litter the landscape. With so many critical support levels busted, a heap of supply rests overhead threatening to reject recovery attempts.
In an environment such as this, strength is usually fleeting. Those bounces? Dead cats. Said simply, “selling the rips” is the new “buying the dips.” In scanning for potential stocks to sell into strength, I focused on areas that are exhibiting relative weakness. That is, they are falling faster and further than the broader market.
Behold, three bounce-back stocks to sell:
Caterpillar (CAT)
Industrial equities have been especially hard hit this earnings season, and Caterpillar (NYSE:CAT) stock is the poster child. Talk of peak earnings, slowing global growth, negative tariff impacts and inflation are all parts of the discussions surrounding why this once mighty feline has been brought low.
Year-to-date, CAT stock is down 28%. If we look at how far we’ve fallen from the January high ($173.24), that number grows to 35%.
Almost the entirety of the loss has come in the past month, which is saying something. With its uptrend now destroyed and every major moving average now pointing lower, Caterpillar is a sell into any strength.
The next two resistance zones to worth selling into if, it can rebound, are $123 and $130. Rallies into either area will create attractive low-risk entries for bear trades.
Home Depot (HD)
Homebuilding stocks have been decimated this year. So, too, have housing-related companies that deal in everything from carpets and cabinets to windows and doors.
And now concerns of a housing slowdown are coming home to roost for Home Depot (NYSE:HD), which has shed 17% in the past six weeks.
The weekly trendline that has defined HD’s ascent for the past two years was broken last week alongside the 200-day moving average. Both momentum and volume exploded to the downside during the downturn. That has me thinking this drop is more than a one-off.
Any rally back toward the 200-day moving average or the upper $180’s will set up an excellent short-selling opportunity.
Advanced Micro Devices (AMD)
Growth stocks are experiencing a great unwinding, and semiconductors lie at the epicenter. The downfall of Advanced Micro Devices (NASDAQ:AMD) just received an exclamation point in the form of an overnight down gap of 21% driven by disappointing earnings. At today’s low, the peak-to-trough crash grew to 48%. The crazy thing is that all those losses were packed into a short six-week span.
With so much damage already baked in, I don’t recommend selling it now. In fact, the post-earnings puke may well spell a short-term low in the stock signaling capitulation. With growth stocks still under the gun and semiconductors out of favor, however, I think rallies continue to be selling opportunities.
If AMD shares can climb back toward the gap fill area near $22.50, it will create an interesting low-risk entry for short trades. Keep this one on your radar!
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.
