The recent stock snapback was a sight to behold. Small-caps led the charge, ending up more than 3%. The surge was particularly impressive in the most beaten-down names, such as the reopening plays. Unfortunately for many charts, the rebound could turn into a dead-cat bounce, making them prime stocks to sell into the strength.
And that’s what today’s gallery is all about. I scanned my watchlist for the stocks that look the most vulnerable to failure on this bounce.
The three I settled on all have downtrends that increased in momentum during the last downswing. And they have a heap of overhead resistance threatening to upend further gains.
Rather than focus on a specific sector, I spread today’s picks across three different areas. The diversification should increase our chances of scoring on at least one of them.
That said, here are three dead-cat bounce stocks to sell:
Let’s take a closer look at each chart. Then, I’ll share a smart options trade you can use to profit.
Dead-Cat Bounce Stocks to Sell: Boeing (BA)
Airline stocks and related companies like Boeing has struggled mightily over the past two months. The delta variant and other concerns surrounding a resurgence in Covid-19 cases have caused investors to smash the sell button. The selling accelerated last week, taking BA stock below its 200-day moving average for the first time since last November.
Along the way, volume increased and registered multiple distribution days. This wasn’t just a retail-driven exodus but one with institutional backing. With so many support levels breached on the way down, BA now has multiple potential resistance areas that should concern traders. We could rally for another day or two yet, so I suggest waiting for confirmation before pulling the trigger on bear trades. Consider using the recent low of $218.90.
There is an earnings announcement scheduled for July 28, but these events have had little impact on the stock over the past year, so I’m not too concerned.
The Trade: Buy the September $220/$210 bear put spread for around $4.
Wynn Resorts (WYNN)
Casino stocks have been part and parcel of the reopening theme. As such, their trajectory has been closely tracking airlines and cruise lines. As a result, the past month’s rollover in Wynn Resorts has been uglier than Boeing, and it now sits below all major moving averages.
In fact, with the recent drop to $100, WYNN stock actually gave back everything gained following the initial jump on the Pfizer vaccine news last November.
While I think the worst of the current downtrend is probably over, playing for one more push lower is tempting. Like BA, there’s loads of overhead resistance, and its daily downtrend is well entrenched. The next earnings report is slated for Aug. 3, but they haven’t created much volatility in recent quarters. Implied volatility is low enough to make bear put spreads interesting.
I would wait for a break of a prior day’s low before entering.
The Trade: Buy the September $110/$100 bear put spread for around $4.
Dead-Cat Bounce Stocks to Sell: Schlumberger (SLB)
The final of our stocks to sell takes us to the oil patch. The entire energy sector has been out of favor for six weeks, but the selling accelerated after crude oil plunged 6.5% on Monday. In fairness, oil prices were roaring back on Wednesday, but the trend of Schlumberger and other oil-related companies remains lower. And that makes the current retracement suspect.
We’re two bars into the bounce and could see a few more up days yet.
As with the previous two picks, waiting for confirmation that prices are rolling back over is crucial. I would use the recent low ($28.02) as the trigger.
Let’s go with a bear put play.
The Trade: Buy the September $30/$25 bear put for $2.25.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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