- Lucid Motors (LCID) is shaping up as a three time loser in-the-making.
- Chewy(CHWY) is a dog on the weekly chart that bears can rip to shreds following earnings.
- AMC Entertainment (AMC) is curtains for a weekly show and apish bulls that haven’t exited.
Dreams of a slam dunk follow-through for Wall Street’s bulls have quickly come under pressure this week. Based on the price action from three of the market’s largest, most-shorted stocks today, it’s time to consider a bearish approach.
A higher-multiple, risk-off trade has put investors on the defensive on the back of yield inversions, follow-through from a Deutsche Bank recession warning, unwanted Covid-19 news and Russian escalations overseas. Hawkish FOMC minutes and threatening dialogue by Federal Reserve members also didn’t help matters, either.
In the process, this week’s challenge by market bears has put a bullish follow-through day (FTD) and confirmed rally during March’s second-half into question. The rally is now under pressure.
Furthermore, as not all FTD’s go on to be full-blown bull markets, these large-cap, most-shorted stocks’ price charts are indicating it’s time to change strategies with big-time profit incentives for today’s bearish shorts.
Lucid Motors (LCID)
Source: Charts by TradingView
Some investors have big hopes for Lucid Motors (NASDAQ:LCID) as an heir apparent to Tesla (NASDAQ:TSLA).
Those dreams might not be entirely misplaced given the outfit’s Dream Edition has hit the road and Lucid is led by an ex-Tesla engineer. But not everyone is upbeat on “the next Tesla” spiel.
The $42 billion luxury EV play maintains short interest of 21% and a days-to-cover ratio of three trading sessions required for bears to concede. But based on this most-shorted stock’s weekly price chart, it appears bulls are about to turn into crash test dummies.
Technically, LCID stock never really motored meaningfully higher as the broader market rebounded out of its bearish cycle in March. In fact, the price action was in stark contrast to TSLA stock’s own bullish leadership.
What’s more, on the weekly chart right now, LCID stock is shaping up as a three-time loser after a trio of failed attempts to reverse off a key band of lifetime price support now sports a bearish stochastics crossover.
A nearby failure below $20.50 warns of a larger corrective cycle that could find LCID revisiting its former $10 net asset value (NAV). For bearish investors, parking risk capital in a long August $19/$13 put vertical is a favored strategy that looks attractive off and on the price chart.
Chewy (CHWY)
Source: Charts by TradingView
Chewy (NYSE:CHWY) is the next of our large-cap, most-shorted stocks worth bearish consideration from investors.
CHWY stock is valued at $19 billion and a top dog in the four-legged family, e-commerce business. But shares have proven a profitable venue for bears to feast upon.
Short interest of nearly 29% has cleaned up since last February with this most-shorted stock down about 63%.
In truth, it hasn’t always been easy for the bears. (A days-to-cover ratio of nearly six sessions has definitely tested the mettle of those shorting CHWY stock over the course of the decline).
Still, it would be hard to turn a blind eye to a recent wider-than-forecast loss, weaker outlook and bearish reaction to the report. The combination strongly suggests CHWY’s bears have more fat to chew on.
Technically, a bearish topping candle pierced a descending weekly triangle in Chewy’s downtrend last week. Today, shares are back in the pattern and forming an inside candlestick. It looks bearish.
Moreover, with the price action also stationed at CHWY stock’s former pattern breakout levels from 2020, and stochastics now in overbought territory, CHWY looks ready to rollover to new relative lows.
Play with this dog as a bear using a “trader’s best friend” with a favored bear put spread like the July $35/$25 combination.
AMC Entertainment (AMC)
Source: Charts by TradingView
AMC Entertainment (NYSE:AMC) stock of course needs no introduction. It’s only second to GameStop (NYSE:GME) over the past year or so as the poster child for bullish apes from Reddit going wild.
Today though, the only thing bulls can rely on are popcorn, NFT trinkets and other goodies from their meme-friendly CEO.
Shares of the $12 billion large-cap maintain bearish short interest of 20% and require about three days to exit. But right now it’s AMC bulls who are being fairly warned to pack it up.
Technically, shares have just confirmed a bearish weekly hangman or shooting star candlestick. I always confuse the two patterns. One thing I’m certain of is this most-shorted stock’s price action is spelling “the end” of another bullish, but short-lived sequel.
A volatile bearish reversal candle is testing AMC’s “GME show” highs from late January 2021. But with stochastics just reaching overbought territory and a downtrend “mostly” intact, AMC stock could be entertaining bears with a blockbuster-style single-digit win this summer.
A slightly out-of-the-money bear put spread placed in July looks attractive. This will let you leverage AMC’s downside and largely avoid more punishing short squeezes.
On the date of publication, Chris Tyler 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.
