{"id":3885,"date":"2014-04-22T13:40:47","date_gmt":"2014-04-22T17:40:47","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=3885"},"modified":"2014-04-23T07:13:03","modified_gmt":"2014-04-23T11:13:03","slug":"best-stocks-to-sell-short-bounce","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/best-stocks-to-sell-short-bounce\/","title":{"rendered":"2 Former Leading Stocks To Sell Short Into The Bounce (And 1 Short ETF)"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright  wp-image-3888\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2014\/04\/short-selling-stocks-300x286.jpg\" alt=\"Stocks to sell short\" width=\"192\" height=\"183\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2014\/04\/short-selling-stocks-300x286.jpg 300w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2014\/04\/short-selling-stocks-110x105.jpg 110w\" sizes=\"auto, (max-width: 192px) 100vw, 192px\" \/>Since bouncing off their April 11 lows, both the NASDAQ and S&amp;P 500 have scored six straight days of gains.<\/p>\n<p>To the casual observer lacking any knowledge of technical analysis, it may appear as though the market pullback of the past month is over and stocks are once again working their way back to new highs.<\/p>\n<p>Because <em>any<\/em> scenario is indeed possible when it comes to the stock market, such an idea is not impossible to believe.<\/p>\n<p>However, the rally of the past week was <strong>more about stocks bouncing from deeply &#8220;oversold&#8221; levels<\/strong> than fresh bullish setups breaking out from <a title=\"Basing patterns explained\" href=\"https:\/\/www.morpheustrading.com\/blog\/best-stock-breakouts\/\" target=\"_blank\">quality basing patterns<\/a>.<\/p>\n<p>This certainly does not inspire much confidence in the current move off the lows <em>and\u00a0<\/em>leads me to believe\u00a0there are&#8230;<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/best-stocks-to-sell-short-bounce\/#3_Reasons_Why_The_Stock_Market_Correction_Is_Not_Yet_Finished\" >3 Reasons Why The Stock Market Correction Is Not Yet Finished:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/best-stocks-to-sell-short-bounce\/#2_Stocks_1_Inverse_ETF_To_Put_On_Your_Short_Selling_Watchlist\" >2 Stocks &amp; 1 Inverse ETF To Put On Your Short Selling Watchlist<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/best-stocks-to-sell-short-bounce\/#Lululemon_Athletica_LULU\" >Lululemon Athletica ($LULU)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/best-stocks-to-sell-short-bounce\/#Conns_CONN\" >Conn&#8217;s ($CONN)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/best-stocks-to-sell-short-bounce\/#Selling_Short_Financials_With_A_%E2%80%9CShort_ETF%E2%80%9D_KBE_FAZ\" >Selling Short Financials With A &#8220;Short ETF&#8221; ($KBE, $FAZ)<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/morpheustrading.com\/blog\/best-stocks-to-sell-short-bounce\/#Timing_Is_Everything_%E2%80%93_Especially_On_The_Short_Side\" >Timing Is Everything &#8211; Especially On The Short Side!<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"3_Reasons_Why_The_Stock_Market_Correction_Is_Not_Yet_Finished\"><\/span>3 Reasons Why The Stock Market Correction Is Not Yet Finished:<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ol>\n<li>So far, the countertrend bounce off the lows has mostly been on declining volume. This points to a <strong>lack of demand among institutions\u00a0<\/strong>(banks, mutual funds, hedge funds, etc.), many of which may be standing by to unload more shares into strength in the coming days\/weeks.<\/li>\n<li>The stock market is currently being held up energy, utility, and real estate sectors, while growth-type stocks (leaders in most healthy bull markets) are in repair mode. When leading stocks and sectors in the market are in the &#8220;defensive&#8221; sector, I surely know it is <strong><em>not<\/em> the type of momentum-driven bull market I am thrilled to buy.<\/strong><\/li>\n<li>Despite its gains of the past week, the NASDAQ is approaching a plethora of technical overhead resistance levels, such as its prior &#8220;swing high,&#8221; 50-day moving average, and downtrend line from the early March high. Although the S&amp;P 500 Index is in better shape because it remains closer to its all-time highs,<strong> relative weakness in the NASDAQ<\/strong> (which will likely take some time to work itself out) should continue to hold any rally attempts by the rest of the broad market in check.<\/li>\n<\/ol>\n<p><span style=\"line-height: 1.5em;\">Based on the three objective facts above, I view the current bounce in the stock market as an<strong> opportunity to sell short (and\/or buy &#8220;short ETFs&#8221;) at low-risk entry points<\/strong>, rather than risking hard-earned profits of the past few quarters on the long side of the market right now (with the exception of select commodity ETFs with minimal to zero correlation to stocks). \u00a0<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"2_Stocks_1_Inverse_ETF_To_Put_On_Your_Short_Selling_Watchlist\"><\/span>2 Stocks &amp; 1 Inverse ETF To Put On Your Short Selling Watchlist<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>As mentioned above, there are still a handful of non &#8220;A-rated&#8221; stocks in defensive sectors that may push higher in the near-term, but clearly this is not the type of high momentum, growth-driven market I like to swing trade on the long side.<\/p>\n<p><span style=\"line-height: 1.5em;\">Presently, there are a handful of stocks that meet my criteria for selling short (former leading stocks blowing up), but I have not yet spotted low-risk swing trade entry points on the daily charts.<\/span><\/p>\n<p>My <a title=\"How To Sell Short Former Leadership Stocks\" href=\"https:\/\/www.morpheustrading.com\/blog\/short-selling-leading-stocks\/\" target=\"_blank\"><strong>favorite type of short setup<\/strong><\/a> is when a recent leadership stock breaks down on the <em>weekly<\/em> chart, then begins to set &#8220;lower highs&#8221; and &#8220;lower lows&#8221; beneath its 10-week moving average (similar to the 50-day moving average).<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Lululemon_Athletica_LULU\"><\/span>Lululemon Athletica ($LULU)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>A good example of this type of short selling setup can be found in $LULU, which convincingly formed a major top in 2012 and 2013, after previously ripping 3,000% off the lows of 2009. This is shown on the weekly chart below:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/140422LULU1.png\" alt=\"$LULU breaking down   \" title=\"\"><\/p>\n<p>With $LULU below key horizontal price support of the $60 level, its 40-week moving average, and recently below the 10-week moving average as well, the stock could suffer a pretty ugly sell-off over the next several months if broad market conditions continue to deteriorate.<\/p>\n<p>Zooming into the shorter-term daily chart of $LULU (below), notice the stock has recently touched the lower channel support of a short to intermediate-term rising channel:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/140422LULU2.png\" alt=\"$LULU short entry point \" title=\"\"><\/p>\n<p>Since $LULU has just come into support of its lower trend channel (circled in blue), the current price of $LULU does <em>not<\/em>\u00a0offer\u00a0much of a low-risk entry point.<\/p>\n<p>Instead, I would ideally love to see $LULU bounce to the $53-$54 area, then stall out again.<\/p>\n<p>Such price action would form the first &#8220;lower high&#8221; on the daily chart interval. But until that happens, I am simply monitoring this stock on my internal short selling watchlist.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Conns_CONN\"><\/span>Conn&#8217;s ($CONN)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Another example of a former leadership stock that has blown up is $CONN, which rallied more than 2,000% off its 2011 lows before crashing through its 40-week moving average (similar to 200-day moving average) earlier this year:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/140421CONN.png\" alt=\"$CONN ugly breakdown on weekly chart \" title=\"\"><\/p>\n<p>Since plunging through its 40-week\/200-day moving average on <em>huge<\/em> <em>volume<\/em> (a sign of institutional distribution),\u00a0it has been grinding higher over the past six weeks, and has recently closed back above its 10-week\/50-day moving average.<\/p>\n<p>Next, let&#8217;s drill down to the price action on the daily chart:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/140422CONN2.png\" alt=\"$CONN SHORT ENTRY \" title=\"\"><\/p>\n<p>Although $CONN is still in bounce mode, I do <em>not\u00a0<\/em>think the stock will <a title=\"What does it mean to &quot;fill the gap?&quot;\" href=\"https:\/\/www.buyandhold.com\/bh\/en\/education\/carlson\/2001\/filling_the_gap.html\" target=\"_blank\" rel=\"noopener\">fill the gap<\/a> created in February of this year.<\/p>\n<p>As such, a bounce to the $50 area would be a gift of an entry on the short side (if it can get there).<\/p>\n<p>As with $LULU, I remain on the sidelines with this setup, but will be monitoring closely for a potential short entry in <a title=\"Sign up for The Wagner Daily\" href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\">my nightly swing trading newsletter<\/a>.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Selling_Short_Financials_With_A_%E2%80%9CShort_ETF%E2%80%9D_KBE_FAZ\"><\/span>Selling Short Financials With A &#8220;Short ETF&#8221; ($KBE, $FAZ)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Two weeks ago, the S&amp;P Bank SPDR ETF ($KBE) sliced through key, intermediate-term support of its 50-day moving average on heavy volume, and has since been wedging higher on lighter than average volume:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/140422KBE.png\" alt=\"$KBE BEARISH WEDGING  action \" title=\"\"><\/p>\n<p>Labeled as &#8220;ideal short zone&#8221; on the chart above, notice how the 20-day exponential moving average and 50-day moving average have converged to form major overhead resistance.<\/p>\n<p>A bounce to (or near) that level of moving average convergence, followed by a bearish reversal candlestick or gap down, would provide me with a low-risk short selling entry point.<\/p>\n<p>If an ideal short entry develops, I would look to <strong>sell short $KBE by buying leveraged Financial Bear 3x ETF ($FAZ)<\/strong>, which has plenty of liquidity with an average of more than 7 million shared traded per day:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2014\/140422FAZ.png\" alt=\"$FAZ PULLBACK ENTRY   \" title=\"\"><\/p>\n<p>Although the price and volume action has not been that impressive during the bounce off the lows, the market could continue to push higher for a few more days before reversing.<\/p>\n<p>Because of this, I feel it still may be a bit too early to get busy on the short side with $KBE\/$FAZ.<\/p>\n<p>As a side note,<strong> leveraged ETFs such as $FAZ should not be held as long-term &#8220;investments&#8221;<\/strong> because they frequently underperform the underlying index with longer holding periods.<\/p>\n<p>But for momentum swing trading, I find ETFs such as $FAZ to be suitable trading vehicles. Further, &#8220;short ETFs&#8221; are a great way for traders &amp; investors with non-marginable accounts (such as IRAs) to gain short exposure to the market.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Timing_Is_Everything_%E2%80%93_Especially_On_The_Short_Side\"><\/span>Timing Is Everything &#8211; Especially On The Short Side!<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Over the past 15 years, I have learned the market is much less forgiving of sloppy timing on the short side compared to long entries in a bull market.\u00a0As such, patience to enter any of the three short setups above (and many others) is crucial right now (<a title=\"Why Patience Is Crucial For Selling Short\" href=\"https:\/\/www.morpheustrading.com\/blog\/patience-short-selling-stocks\/\" target=\"_blank\">this short video<\/a> explains why).<\/p>\n<p>Further, it&#8217;s important to understand that<strong> new long entries are\u00a0<em>not<\/em> yet completely off the table.<\/strong> If, for example, the stock market pulls back after this rally, comes into support and holds, new long setups may emerge.<\/p>\n<p>For now, it&#8217;s even fair to say stocks are merely entering into a protracted trading range.<\/p>\n<p>Nevertheless, in the coming days and weeks, I will be providing subscribers of <em>The Wagner Daily<strong>\u00a0<\/strong><\/em>with my preset and exact entry, stop, and target prices for these and any other stocks\/ETFs that meet my criteria for swing trade entry.<\/p>\n<p><a title=\"Subscribe to The Wagner Daily\" href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\"><strong>Subscribe today<\/strong><\/a> to ensure you don&#8217;t miss out on the next big move in the markets.<\/p>\n<div class=\"cfmonitor\"><center><script src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\" async=\"\"><\/script><!-- Footer of content --> <ins class=\"adsbygoogle\" style=\"display: inline-block; width: 300px; height: 250px;\" data-ad-client=\"ca-pub-7565144363001883\" data-ad-slot=\"7002222565\"><\/ins><script>\/\/ <![CDATA[\n(adsbygoogle = window.adsbygoogle || []).push({});\n\/\/ ]]><\/script><\/center><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Since bouncing off their April 11 lows, both the NASDAQ and S&amp;P 500 have scored six straight days of gains. To the casual observer lacking any knowledge of technical analysis, it may appear as though the market pullback of the past month is over and stocks are once again working their way back to new [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-3885","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/3885","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=3885"}],"version-history":[{"count":0,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/3885\/revisions"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=3885"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=3885"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=3885"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}