Top Technical Shorts to consider
Key Takeaways
- Monday’s follow-through decline has caused SPX to close at lowest since 3/24.
- Technology remains under pressure, and still early to expect meaningful snapback.
- TNX pushed up above last week’s highs, and still no meaningful evidence of a top.
US stocks seem to be following the technical playbook and might weaken further into early next week before finding some support just over 4400. Semiconductor and Transportation shares pulled back sharply while many of the Re-opening trades have begun to stall out after minor bounces in recent weeks. Utilities and Consumer Staples were the only two positive Sector SPDR ETF’s in trading on Tuesday, while Technology and Energy were particularly hard hit. S&P’s break of its one-month uptrend last week looks to now be following suit lower, and should reach the 38.2% of the late March rally which equates to SPX-4454. Further weakness near-term can’t be ruled out however, but seems unlikely to break 4400 right away, a key technical level equating to the 50% retracement area of the late March advance as well as early March peaks made right near 4400. At present, near-term trends are bearish, and market lows look premature.
Technology remains under pressure, and lows are premature
While there’s no guarantee that February lows need to be challenged right away, my cycle studies suggest this should be a likely outcome into June/July timeframe. As discussed, much of the recent rally was comprised of “FAANG” stocks like AAPL-1.22% and MSFT-1.48% , while the underperforming sub-sectors within Discretionary attempted a sharp rally but now look to be reversing course. Financials have not worked out as planned lately given rising rates, and parts of Industrials, namely Transportation or Multi-conglomerates, continue to weaken further. Overall, this remains a Stock-pickers market, but there remain plenty of stocks moving higher and also stocks rolling over which appear like good technical shorts.
Before we get into some Shorts to consider, let’s take a look at Technology, as far too many seem to be trying to time bottoms in this group given a minor bounce in some of the more beaten down areas within Tech. Overall, finding a bottom in something with momentum slanting down sharply on multiple timeframes can take time, so it’s right to act gingerly when trying to buy dips in severely oversold names and often expect tactical type bounces only, not that these minor rallies are the start of a move back to highs.
Technology continues to falter following the break of its three-year uptrend vs the SPX, relatively speaking. While parts of this group certainly have shown more strength than others, it’s worth pointing out that the Software bounce looks nearly complete, while Semiconductor stocks (per SOX) have fallen to multi-day lows and are likely to weaken further.
Semiconductors look particularly weak within Technology and a test of March lows looks likely
The PHLX Semiconductor index, or SOX, fell over 4% in Tuesday’s trading, dropping to the lowest levels since mid-March. Technically, this daily SOX chart since last Spring shows no net progress, as SOX closed at 3305 back on 4/5/21, higher than Tuesday 4/5/22’s close of 3269.83. Daily momentum indicators like MACD have rolled back over to negative territory, and the first Bottom in March last month occurred at the 61.8% Fibonacci extension level of the initial one-month decline from late December in 2021 which was important and held on the first pullback.
Additional downside targets (in the event that 3/14/22’s 3047.50 levels are breached) would lie at 2917, and it’s thought that 2723 should represent a maximum area for weakness in the months ahead. Thus, this dip should be thought of as eventually being buyable, but the next 3-5 days looks particularly vulnerable for SOX, and additional weakness looks likely.
Top Technical Shorts to consider
I’ll discuss my favorite Technical shorts for a 2-3 month timeframe, but expect some of these might work more quickly than anticipated given the recent technical weakness in recent days. These are selected based 100% on Technical analysis and do not consider underlying fundamentals of the company, nor should they be considered recommendations. As with all technical ideas discussed, it’s up to the investor to manage his/her risk, and most times it’s wise to consider Stops given the long-term bullish nature of the stock market.
The Stocks below are selected from the major SPDR Sector ETFs of the respective Sector. These comprise stocks which mostly have ample liquidity. Additionally, I’ve left out Healthcare, Materials, Energy and Technology as these are my favorite sectors for 2022 for outperformance, though the Communication Svcs sector will have some overlap with Tech.
Technical Shorts:
Consumer Discretionary: WYNN, LVS, ETSY, NCLH, NKE, SBUX
Financials: BEN, TROW, CBOE, MS, GS
Industrials: BA, MMM, FDX, AAL, UAL, CMI, HON
Communication Svcs: DIS, NFLX, MTCH, LUMN
Utilities: NRG, AES, AWK
Consumer Staples: KMB, EL, CLX, WBA, TSN
REITS: SPG, DLR, CBRE, FRT
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