Many bullish investors might be saying to themselves, “so far, so good” for the month of January. Still, to ensure this isn’t as good as it gets for your portfolio, let’s dive into three large caps worth betting against in 2020.
It has been a great start to the year. And it goes without saying most of us hope the party will motor on. The broad-based, large cap S&P 500 index is up about 3% in January and continues to hit record highs with more than two trading weeks left in the month. Who wouldn’t want that type of performance after 2019’s amazing 29% gain and one layered on top of this past decade’s record breaking bull market?
Only a bear I suppose.
Increasingly though, it looks like Goldilocks is at the doorstep. Aside from the amazing price feats in large caps — the latest being Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) admittance into the $1 trillion club — there are problems. There’s a complacent market resting on historically rich multiples to be worried about. Investors might also be concerned about an overly accommodating Federal Reserve or a seemingly endless string of strong economic data. And that’s not all.
Now and with this week’s euphoric pricing of negotiated trade deals, investors have every right to be even more fearful. And one way to make sure today’s market isn’t as good as it gets for you is to have these three large cap stocks positioned as bearish allies in your portfolio.
Large Caps to Short: Tesla (TSLA)
Source: Charts by TradingView
Many bears have been on the wrong side of the street in Tesla (NASDAQ:TSLA). In fact, TSLA stock is officially the U.S. market’s most heavily shorted equity with $14.5 billion in bets against shares. Right now, however, there is more to betting against TSLA stock without miserly joining the ranks of punished bears.
Technically and as the weekly chart details, Tesla is in a strongly overbought position evidenced by its stochastics and price in relation to its upper Bollinger Band. Throw in a slightly extended 100% Fibonacci-based two-step pattern (AB = CD) completing in a large shooting star candlestick and TSLA looks ready for a bearish test drive.
TSLA Stock Bear Strategy: I wouldn’t recommend shorting Tesla. I’d advise gaining short delta exposure using a limited and reduced risk bear put spread. One on my radar is a well-positioned March $480 / $465 put spread.
Apple (AAPL)
Source: Charts by TradingView
After 2019’s dazzling 89% gain in Apple (NASDAQ:AAPL), the AAPL stock chart indicates that it’s well-positioned for a short.
Technically, January’s follow-through momentum has pushed Apple shares into a test of four well-extended layers of Fibonacci-based resistance. The tight completion area is comprised of three two-step patterns dating as far back as the 2009 financial crisis bottom and a 100% extension out of AAPL stock’s 2018 – 2019 corrective base.
AAPL Stock Bear Strategy: For this large cap stock I’d suggest waiting for a reversal candlestick to form on the weekly time frame before shorting shares. A stop-loss above the pattern high makes sense to minimize losses if shares buck the odds and continue to display over-the-top investor confidence.
On the downside, $250 – $265 is where taking initial profits looks promising. This area holds AAPL stock’s 38% retracement level from last year’s corrective low and prior trend-line resistance, which should act as support.
Walmart (WMT)
Source: Charts by TradingView
Walmart (NYSE:WMT) is the last of our large caps to short. The world’s largest bricks and mortar retailer has shown itself to be an adaptive and resilient company in today’s e-commerce market. But WMT stock’s ability to rise to the occasion against the likes of Amazon (NASDAQ:AMZN) appears to be priced in at this point in time.
Technically, shares of Walmart have moved into layers of Fibonacci-based resistance. The price action isn’t unlike that of TSLA stock or AAPL stock. And similar to the former, WMT stock even sports a monthly chart shooting star. But in this large-cap stock, the bearish November price pattern has been confirmed out-the-gate in 2020.
WMT Stock Bear Strategy: With the topping pattern backed by an overbought and ill-positioned stochastics crossover, there’s no time like the present to short WMT stock. Set a stop-loss above $125 to minimize potential damage off and on the WMT price chart. If shares begin to correct, taking initial profits near the pleasing to the eye $100 level and four-year uptrend support looks about right.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
