With the S&P 500 still hovering very close to all-time highs, there are a lot more stocks in uptrends than downtrends. Even so, being aware of some weaker stocks can be beneficial. The potential for further downside may affect whether a current long trade in one of these stocks is held or closed. A down trending stock may also present a short trade opportunity, for speculative or hedging reasons.
The Coca-Cola Company (KO) peaked at $47.13 in April and has been trending lower since. The latest move down was from $43.03 (Oct. 26) to $39.88 (Dec. 1). The price managed to recoup some of those losses, bouncing up into the $42 region. It stalled there, consolidating between $42 and $41 through the latter half of December. On January 10 the price dropped below $41 intraday and closed the session at $41.04. Momentum appears to be back on the downside. The downside target is $39.25 to $39, based on the trajectory of the downtrend. Over the longer-term, the stock could continue lower than that, but there is support between $38 and $36.50 from 2015. Consider short entries between $41.35 and $41, with a stop loss above $42 or $42.30, and a target at $39.25 to $39. These levels provide at least a 2:1 reward:risk ratio, and potentially more depending on the exact trade levels used.
Life Storage, Inc. (LSI) has been falling since it peaked at $118.18 in March. After a sharp decline from $95.05 (Sept. 23) to $77 (Nov. 3), the price has retraced approximately 50% of that decline. That means that despite the short-term move higher, this is still a downtrend and therefore the bias remains down. To start the year, the stock has consolidated between $84.07 and $86.92. This consolidation occurs just above the December swing high of $86.57. This shows that this move up hasn't had much follow through, and that favors the bears. A decline back below $84.07 potentially indicates this late December mini-rally has ended, and the longer-term downtrend is resuming. If going short, a stop loss can be placed above $87. The downside target for the next move lower is $75. The price could move below that over the longer-term, but there is support at $75 which could help stall the decline.
The Bottom Line
The S&P 500 is still hovering near all-time highs, and there is no shortage of stocks in uptrends (For more, see: Commodity Stocks With Buy Signals), but it is also worthwhile to be aware of the stocks that aren't performing well. The potential for further downside should be considering if holding long positions in these stocks (or shorts). These stocks could also be used as short trades based on the downtrend, projected price targets, and favorable risk/reward ratios. Trends can turn at any time, which is why stop loss orders are used, and only a small percentage of account capital should be risked on any single trade.
Disclosure: The author doesn't have positions in the stocks mentioned.