Today we’re offering up some bear fodder. Of course, finding stocks to short these days isn’t exactly challenging. What with the recent carnage and all. Throw a dart, and you’re bound to hit something that has shattered support and is now trending lower.
But the discriminating bear doesn’t just want a weak stock. They’re also looking for a palatable entry boasting low risk and high reward. We’re talking about attractive entries, which center around two setups: the support break and the resistance smack.
The former involves a downtrending stock that is slicing below a significant floor. The latter consists of a downtrending stock that just rallied to resistance and is ready for another smackdown.
Today’s selections provide examples of both. So, without further ado, here are three of the best stocks to short right now.
Alibaba (BABA)
Chinese stocks have suffered disproportionately for months now. The ongoing tit-for-tat tariff talk along with the strengthening dollar has upended the entire emerging markets spac, leaving plenty of stocks to short. Against this backdrop Alibaba (NYSE:BABA) shares having been sliding lower in a powerful descending channel. Those trading with the downtrend have found profits in its consistency.
This morning’s up gap in Chinese equities has lifted BABA back to overhead resistance. With the falling 20-day moving average looming close as well as a horizontal resistance zone, I think this is an attractive low-risk entry for bears.
To capitalize on the high implied volatility, sell the Nov $165/$170 bear call spread for 60 cents.
Square (SQ)
Our next victim hails from the freshly beaten tech sector. Growth stocks have been bludgeoned in recent weeks, and Square (NYSE:SQ) is one of the biggest losers. Since breaching the 50-day moving average, SQ has formed a lower pivot high showing that sellers are now in control. With the stock still closer to resistance than support, the risk-reward favors sellers over buyers here.
The first downside target is support at $65. Below that, a test of the 200-day moving average near $62 comes into play. Because implied volatility is so elevated, I favor selling premium versus buying it.
To bank on continued weakness consider selling the Nov $80/$85 bear call spread for $1.20.
Honeywell (HON)
Honeywell (NYSE:HON) is entering the week hovering precariously near a support zone. Numerous pivots have formed in the $152.50 area lending weight to its significance. Moreover, the 200-day moving average sits at this level and traders could look to a break below it as further reason to turn bearish on HON.
On Friday the stock suffered a large distribution candle following its earnings release providing further evidence that traders are in the selling mood. The post-earnings volatility crush was mild, and option prices remain pumped. Sell the Nov $155/$160 bear call for $1.40.
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.
