Weekly Update: Preparing to Short the Oversold Bounce
Stocks saw more selling this week with each of the major indexes making new 52-week lows.
As I pointed out in last week’s update, this was largely expected.
Institutions were clearly reducing exposure, as evidenced by the increase in volume on the acceleration down.
Given the violence of the recent selloff, I believe we are due for an oversold bounce.
In other words, stocks could make a short-term rally before continuing the move lower.
Just as stocks do not go straight up, they do not go straight down either.
They tend to stair-step their way lower with short, weak rallies in between periods of heavy selling.
I remain bearish on the market until we see meaningful signs of recovery.
At a minimum, this would mean waiting for a follow-through day and preferably several days of meaningful buying and new stocks setting up in breakout formations.
Finding good targets to sell short can be difficult when they are falling rapidly.
If you are a regular attendee of my weekly Stealth Trades or Alpha Stocks live weekly sessions, you know I prefer to sell short off a bounce and against some level of resistance.
We did so in Alpha Stocks two weeks ago and made over 600% buying put options on Pegasystems Inc. (PEGA) before the stock fell more than 40%.
My trade ideas this week will again focus on short opportunities.
Each of these names are in clear downtrends, and I will be pointing out low-risk areas where I would be interested in selling them short.
Evercore Inc. (Short Idea)
Evercore Inc. (EVR) was a market leader following the pandemic selloff of 2020. Shares climbed over 400% before peaking in October.
Since then, EVR has reversed course.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stealth System…
- Surge score: 37/100
- % Above 52-wk low: 5%
- Sales growth: +9%
- Return on Equity: 66%
- Triple momentum: yes (short)
EVR now trades below its 200-day moving average, trending lower and cannot rally above the 50-day moving average (red line).
It is now trading against its downtrend line and just below the 50-day.
I like this as a short trade with a buy stop at $117 for protection.
Central Garden & Pet Company (Short Idea)
Central Garden & Pet Company (CENTA) is a mid-cap consumer goods company selling pet food and garden supplies direct to consumer.
In the age of Amazon, this is a questionable business model at best. And based on the technicals, this stock could be on the verge of a major decline.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stealth System…
- Surge score: 67/100
- % Above 52-wk low: 7%
- Sales growth: +2%
- Return on Equity: 14%
- Triple momentum: yes (short)
Shares are forming a bearish “wedge” pattern with long-term support near the $40 mark.
But we don’t need to wait for it to break down before shorting the stock.
CENTA is trading right up against its downtrend line and just a dollar below the 200-day moving average. That’s a lot of resistance to push through.
I would consider selling this short in the $42-$43 range with a buy stop at $45.
This comes out to a risk of roughly 5% on a trade that could deliver a big win on the downside.
Adobe Inc. (Short Idea)
Adobe Inc. (ADBE) is one in a long list of past winners that has given back all of its post-pandemic gains.
The stock is down 43% since November and could fall further.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stealth System…
- Surge score: 29/100
- % Above 52-wk low: 9%
- Sales growth: +9%
- Return on Equity: 43%
- Triple momentum: yes (short)
The trend is unquestionably bearish for ADBE stock, and shares have been unable to trade above their 50-day moving average for almost six months.
I would consider selling ADBE short in the $410-$425 area for a continuation move lower.
Work a stop at $442 for protection.
Where’s the Alpha?
With the major indexes down double-digits and many of last year’s leading stocks down over 50%, consider checking out my Alpha Stocks trading service.
We have plenty of long ideas for the right stocks, but we’re also not afraid to go short. We short stocks and we also provide option alternatives if that’s more of your style.
And we get together every Monday for an hour-long live session so that subscribers can ask questions and get guidance about our trades.
If you’re ready to see what you could be missing out on, click here to learn more about Alpha Stocks now!
Live Coaching Session
Monday, at 3:00 p.m. EDT, we’ll be hosting our regular weekly coaching session for Stealth Trades.
We’ll send you a login reminder that morning, just so you don’t forget.
We’ll cover all of our new stocks on the Watchlist as well as the rest of the stocks inside Stealth Trades.
You need to attend this session to get the most from your subscription!
In the meantime, you can watch the replay of our latest Stealth Trades session right here.
Best wishes for your trading,
Ross Givens
Editor, Stealth Trades
P.S. If you’re ready to see what you could be missing out on, click here to learn more about Alpha Stocks now!