September ended on a high note, but it wasn’t without its victims. The nasty rug-pull that greeted us at the beginning of the month left many trends tarnished and charts choppy. As a result, the rally carrying us into October is lifting many downtrends directly into resistance. I’ve scoured the landscape and found three hot stocks to sell into the strength.
The rationale is straightforward. Today’s candidates all suffered heavily during the recent market correction. Distribution days surged while prices plummeted. And with that, the game has shifted from buying dips to selling rips.
Here are my favorite picks to abandon into strength.
After highlighting their deteriorating technicals, I’ll unveil my favorite options strategies for profiting from their downtrends.
3 Hot Stocks to Sell in October: World Wrestling Entertainment (WWE)
Weakness is nothing new for World Wrestling Entertainment. Bears have been laying on the smackdown for over a year. From 2019’s peak of $100.45, the stock has fallen some 60%.
This has happened, mind you, while the rest of the market has been flying high. It’s one thing to fall when the entire market is under pressure. It’s quite another to do so when investors are in love with equities.
The weekly trend is cruising lower beneath all major moving averages, and a visit to this year’s 52-week low near $30 is a real possibility. WWE was stable through the summer, but September’s selling proved too much. The break of $41 signaled the long-term downtrend was ready to begin anew.
This week’s rally pulled the stock back to the falling 20-day moving average, and old support looms large as a potential ceiling. This is as good a spot as any to sell the stock or initiate bear trades.
The Trade: Buy the Nov. $40/$35 bear put spread for $1.85.
The second of our hot stocks to sell is Cisco. Like WWE, the weekly trend of CSCO stock has been trending lower since mid-2019. It staged a robust rebound from March’s meltdown, but August’s earnings announcement arrived to spoil the party.
Since the disastrous down gap, we’ve seen nothing but selling pressure. The follow-through has been extremely consistent with every rally rejected, and support break chased.
The current retracement is pushing up against the declining 20-day moving average. This has been the gathering ground for bears over the past two months, and I see no reason to second-guess their ability to spark another downswing. If we take out Wednesday’s low ($39.02), I like initiating new short positions.
Implied volatility is relatively low, and that makes long premium trades attractive.
The Trade: Buy the Nov. $39/$36 bear put. Once the stock triggers, the price should be around $1.15.
Dish Network (DISH)
The recent support break in Dish Network is worrisome. Ever since June, $31 was the level where selloffs went to die. But this month, that changed. Bears finally pushed prices through the floor, simultaneously causing a break of the 200-day moving average.
Volume soared during the breach signaling shareholders abandoning ship and new short sellers entering the fray. DISH stock did score a tiny rebound this week, but it occurred on low volume and barely reclaimed any of the lost ground. The relative weakness today is telling. While the S&P 500 is up nearly 1.5%, DISH is down 0.5%.
I think it’s a sign of things to come.
The Trade: Buy the Nov. $30/$25 put spread for $1.80.
If the stock can run back above the 200-day moving average near $31.34, then consider stopping out of the trade to minimize the loss.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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