Updated: Apr 30
Thanks for taking the time to read today's blog post in here we'll discuss some of the best short trades we see in the market. Please be sure to read the disclaimer on our site before moving forward, comments below and follow us on social media (FaceBook, Instagram, and twitter)!
If the market is going to confirm what we've been seeing recently than we want look at charts where we are seeing weakness and patterns that are confirming this weakness to take advantage of that. Since we've been seeing a lot of selling last week in technology we will take a look at technology laggard that's been under performing its peers, a European bank stock that is breaking down and an ETF, or Exchange Traded Fund, with a bearish chart pattern.
In tech we have $IBM that has been a serial under performed for some time. To me the chart looks similar to patterns that I have been seeing in charts that have not been breaking out and if we are going to be short we want to short the worst performing stocks. The line in the sand for me is below $123 in $IBM, if we continue this momentum to the downside in technology and $QQQ remains below $281. I think eventually we could see $107-$108 in $IBM and maybe even all time lows if it breaks this symmetrical triangles to the downside with its MACD and weak RSI divergence confirming the current weakness in $IBM.
Next, we have Credit Suisse Group Sponsored ADR, or $CS, which is another stock and a banking stock at that that never made it even close back to it's February highs. $CS is sporting a downward sloping 200 SMA on it's daily and weekly chart with a bearish divergence on the weekly chart with a pennant sell setup.
This pattern suggests further weakness in the European banks and I think we can see $9.75 sooner rather than later and even the possibility of $8.5 in the weeks and months ahead if we see further evidence of weakness in the markets. If we want to be short the weakest than an area where we are going to see weakness is the banks, especially euro banks like $DB too.
Along with the theory that we want to be shorting the weakest stocks it would only make sense that we would want to short the weakest sectors as well in the market, right? Right! Throughout this rally in 2020 we have seeing technology and big corporations like $AAPL and $TSLA outperform it's peers to the upside. What we have seen lagging is smaller growth sector of the market which makes sense as it was much harder during the pandemic, therefore we want to take a look at $IWM, this is the Russell 2000 Index which measures the performance of the small-capitalization sector of the US equity market.
$IWM setup a reverse W breakout pattern and instead created a M for "Murder" sell pattern, also called a double top. Here on the weekly chart we can see a negative divergence in the RSI (which got oversold with a reading below 30 in March during the stock market rout) in the past few weeks as well as a longer term basis. The MACD, check out my first article for a further explanation, is also confirming this divergence in trend, while the rest of the indices have been making new highs $IWM was lagging it's peers.
For $IWM our line in the sand to be short is $153, our target being in the $142 to $136 area where we have some gap fills in price and the 38.2% Fibonacci retracement. Let's take a look and reassess what these trades bring after a week or two to see how they have played out.
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Essex's Trading Quote of the Day (QotD)
"Sometimes you win, sometimes you learn."
John C. Maxwell