The two-day drop carrying stocks into the weekend was significant enough to warrant reassessment for bulls. If the selloff continues into the week ahead, I want to be ready with bearish ideas to capitalize. That’s why this week’s top trades gallery is focusing on stocks to sell now.
Given the power behind the S&P 500’s recovery, it has become increasingly difficult (and unnecessary) to spend much time courting bears. But, again, that all changed with last week’s whack, and I was able to find many candidates to build bearish positions around.
They’re all in weekly downtrends and look ready to drop anew. On the pattern front, they are knocking on crucial support levels, which, if broken, will trigger short trades. Here are the tickers in play:
Let’s take a closer look at the damage dealt.
3 Top Stocks to Sell for the Week: Southwest Airlines (LUV)
The demise of airline stocks has been analyzed from every angle at this stage. So, let’s keep it simple. The novel coronavirus is killing them. Two things caught my eye on LUV stock over the weekend. First, despite multiple vigorous rallies over the past six weeks, it has returned to significant support and is on the brink of breaking down.
Second, Warren Buffet’s admission over the weekend that Berkshire Hathaway (NYSE:BRK.A, BRK.B) sold off all of its airline holdings has the entire industry gapping down big time this morning. On the one hand, it robs traders eyeing Friday’s setup of the ideal entry point. On the other hand, it could be the beginning of a much larger drop, making missing the first $1 to $2 move irrelevant.
If you’re comfortable with the open-ended risk, you could short the stock. Otherwise, long put spreads are worth a shot.
The Trade: Buy the September $25/$20 bear put for around $1.87.
FedEx has found itself stuck in a weekly downtrend for over two years now. The consistent nature of its decline has made it difficult to trust the past month’s rebound. It was preceded by about a dozen rebounds that all ultimately failed after forming lower swing highs. Tack on the fact that this year’s pop was preceded by an epic 46% decline over four weeks, and sellers have had this retracement’s number from the beginning.
Last week’s weekly candlestick took on the form of a bearish engulfing candle that ended at the low of the bar. It also placed FDX stock within a whisker of breaking short-term support at $117. And with futures trading lower premarket, FedEx will trigger the support break at the open. That makes this a top pick for stocks to sell now.
Implied volatility is low enough to make long premium plays interesting. I like buying put verticals here.
The Trade: Buy the July $110/$100 bear put spread for around $3.50.
The price chart of Caterpillar has quite a few similarities to FedEx. A two-year descent ushered the stock into 2020 only to accelerate to the downside during the March crash. Rebounds after downswings with increasing momentum are always suspect, and sure enough, CAT stock is in the process of rolling over as I type.
It’s back below the 50-day and 20-day moving averages and entered the week testing the $109 support zone. Monday’s selling has the stock trading below the floor and is the trigger I would use for the trade. The next two targets are $100 and $90.
I’m keeping the trade ideas consistent for this week’s stocks to sell now. Let’s build a bear put spread.
The Trade: Buy the June $110/$100 put spread for around $3.80.
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