Mercifully, stocks have experienced a relief rally into year-end. The S&P 500 has bounced 7.6% off the lows bringing some reprieve to beaten-down share prices and investors. But while some are using the rebound as fuel for optimism heading into 2019, most traders realize the technicals have turned, and bear trades are the most attractive right now.
Major support zones were breached during the recent thrashing, including the 200-day moving average. And now, heavy resistance looms overhead threatening to upend future recovery attempts. In fact, with with the S&P 500 already having risen so far off its lows, some would say the time to deploy short trades is now.
With so many attractive bearish setups available, it isn’t hard to find potential plays into the new year. For today’s picks, we focused on identifying large-caps suffering major technical damage and increasing downside momentum.
Here are three bear trades to tee up for the turn of the year.
Apple (AAPL)
The year-to-date losses in Apple (NASDAQ:AAPL) fail to capture the totality of the damage inflicted on the tech titan. If we measure the descent from the 2018 peak, however, the gravity of the situation becomes clear. Since peaking at $233.47, AAPL stock has shed 32% of its value.
Along the way, its valuation has cheapened and its dividend yield has swelled. The trailing P/E ratio stands at 13 while the dividend is now up to 1.8%.
The trouble is the technicals. Apple’s price chart leaves little reason for optimism. Its downtrend remains entrenched beneath all major moving averages, and the downside momentum is increasing. If you believe the current rally will fail like its many predecessors, then buy the March $160/$145 bear put spread for $6.05 or better.
Amazon (AMZN)
We can spin 2018’s performance for Amazon (NASDAQ:AMZN) any way we’d like. Optimists will point to its year-to-date gain of 26% as evidence of its continued world domination. Pessimists will cite its 26% drawdown from this year’s peak as a sign that its dismantling has begun and further downside awaits as the equity bear market is likely to persist into 2019.
Regardless of your view, the price action for AMZN stock warrants continued caution. For all its fury, the four-day bounce has done nothing to change the structure of its downtrend. Until further signs of a definitive bottom emerge, I suggest viewing the current rebound as doomed to fail.
To capitalize on the next downturn, buy the March $1,500/$1,300 for $67 or better.
Exxon Mobil (XOM)
Crashing oil prices have not been kind to energy stocks. Even the king of oil has been brought low. Exxon Mobil (NYSE:XOM) is set to close out 2018 in the midst of a 24% drawdown from its January peak. What’s worse is its downtrend is accelerating lower showing increased selling aggression.
The weak recovery that has materialized over the holiday trading strikes me as a dead-cat bounce and nothing more. Tack on a crude oil chart that continues to point toward lower prices and I see little reason for optimism in XOM stock as we head into 2019. The next downside target is $56, which marks the lows from the 2008 financial crisis.
If you think the weakness persists, then buy the March $67.50/$60 bear put spread for $2.25 or better.
As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.
