If May’s entrance is any indication, stocks are destined for a volatile summer. This morning’s mega down-gap amid continued trade war fear is the latest evidence that the low-volatility uptrend carrying stocks higher for the first four months of the year is officially dead. To profit from the bears’ return, today we’ll look at three stocks to sell.
In targeting candidates for short sellers to sink their teeth into, I focused on two things. First, these stocks all find themselves stuck in downtrends, beneath falling moving averages across multiple time frames. With resistance aplenty heaped overhead, future rally attempts have high odds of failure
The second characteristic is a byproduct of the first — relative weakness. All three of today’s selections are underperforming the broader market.
Behold, three stocks to sell as tariff woes take hold.
3 Stocks to Sell: Lyft (LYFT)
All the lift for Lyft (NASDAQ:LYFT) took place in the private markets. Ever since going public, LYFT stock has been a massive disappointment, bringing pain and suffering to anyone unfortunate enough to have bought it in the week after its debut.
Last week, its downtrend intensified after a poor earnings release and an underwhelming IPO for Uber (NYSE:UBER). All told, LYFT stock has fallen 45% since peaking at $88.60. With only six weeks of trade history, there isn’t a whole lot of price action to analyze. It’s in a nasty downtrend and sits at all-time lows. No support levels exist down here, so our best bet is to bank on a continuation of the downtrend.
Buy the July $50/$45 bear put spread for $2.50. The risk is limited to $2.50, and the reward is capped at $2.50.
The number of victories for Tesla (NASDAQ:TSLA) short sellers in 2019 is beginning to add up. First and foremost is their ultimate control over the price trend. Bears have succeeded in squashing every single rally attempt, resulting in an orderly downtrend. The 20-day, 50-day and 200-day moving averages are all declining to confirm sellers’ control of all time frames.
The second victory was Tesla finally breaking pivotal support at $250. Its failure ended the stock’s two-year trading range and now means there’s a completed topping pattern that could weigh on the stock for months to come.
With the stock down for its fifth down day in a row, I don’t suggest chasing bearish trades here. Instead, wait for a bounce or at least some consolidation before jumping in. As far as strategy selection goes, I like bear put spreads here to control the cost. Straight put purchases are too expensive.
Electronic Arts (EA)
Electronic Arts (NASDAQ:EA) has had quite the volatile ride this year. But lately, sellers have emerged to wrest back control of its trend. Heading into the new week, EA stock finds itself submerged beneath descending 20-day, 50-day, and 200-day moving averages.
The reaction to last week’s earnings announcement is another eyesore. It gapped up but was rapidly rejected, resulting in a large red candlestick. With that type of behavior, it’s hard to bet with buyers here.
Clear support looms at $90, and that provides an easy price level to trade around. If EA breaches $90, then swing away with bear trades. Buying the July $90/$85 bear put spread is my play of choice.
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.