Bears have fired more than a few shots across the bow this month. And as the damage mounts, opportunities for short selling have multiplied. On behalf of any and all traders who like to walk on the short side, I’d like to say it’s about dang time.
Before this month, bearish setups were scarce, and weakness was isolated to a few stocks and industries. But not now.
First, it was the tech wreck, then it was retail that was bloodied. Let’s not forget the energy sector, which has been stumbling all year long.
With the list of victims growing and volatility beginning to rear its ugly head again, there’s no time like the present to consider a few tactical bearish bets.
Today’s selections find themselves entrenched in downtrends and resting near resistance after rallying higher this week. Check out these three rallies for short selling.
3 Rallies for Short Selling: United States Oil Fund (USO)
Click to Enlarge
Since cratering to a new low for the year of $42.05, crude oil has cobbled together a modest rebound. In fact, black gold is on the way to its sixth up day in a row. That’s impressive for a commodity that was left for dead just last week.
But with the overall trend still pointing lower, this rally should be viewed with skepticism. Indeed, any and all oil bears are beginning to get itchy trigger fingers.
The easiest way to play oil is through the United States Oil Fund LP (ETF) (NYSEARCA:USO). Rather than short shares outright, let’s consider a short call option trade. In timing the entry, I suggest waiting until USO shows signs of turning lower, such as breaking a prior day’s low or intraday support. Sell the Aug $9.50 call option for 30 cents or better.
3 Rallies for Short Selling: SPDR S&P Retail ETF (XRT)
Click to Enlarge
Ironically, the descent in energy has been echoed by retail. The SPDR S&P Retail (ETF) (NYSEARCA:XRT) tagged a new low alongside USO last week. Like USO, XRT is on its sixth up day in a row.
But the easiest part of the oversold bounce is over. Now, XRT is running into some significant overhead resistance levels.
Couple that with declining 20-day, 50-day and 200-day moving averages and sellers still deserve the benefit of the doubt here.
Rather than wagering XRT is going to bite the dust, I prefer simply betting it will have trouble rising to $43 by August expiration. Sell the Aug $43 call for 33 cents or better.
3 Rallies for Short Selling: Costco Wholesale Corporation (COST)
Click to Enlarge
Costco Wholesale Corporation (NASDAQ:COST) rounds out today’s trio with yet another rally that should be sold. COST was arguably the hardest hit grocer in the aftermath of the news that Amazon.com, Inc. (NASDAQ:AMZN) was purchasing Whole Foods Market, Inc. (NASDAQ:WFM).
COST has rallied back slightly over the past week, but it appears this is a dead-cat bounce, nothing more.
With the stock now submerged beneath all its moving averages, bears maintain the upper hand. To capitalize on Costco’s inability to recover fully, sell the Aug $165/$170 bear call spread for $1.15.
At the time of this writing, Tyler Craig held short bearish option positions in XRT, USO, and neutral positions in COST.
