A price pattern that has played out multiple times over the last two years points to at least a multi-percentage point drop in the S&P 500 (For more, see: S&P 500 Price Action and Seasonality in Conflict). The Nasdaq 100 Index has also seen the same repeating bearish pattern, and that index has already sold off aggressively from the October peak. While December is typically a bullish month for stocks, this bearish price pattern indicates otherwise. Consider having some short trades on the radar for if further weakness develops. Short trades allow for a profit to be made if prices decline, but create a losing scenario if prices rise.
Intel Corp. (INTC) met major resistance near $38 in late 2014, which ultimately led to the price falling to $24.87 in 2015. This year, in September and October the stock challenged $38 again and has been rejected aggressively. Falling off resistance at $38 means there is downside potential for the stock. If the price falls below $33, it will break the rising trend line extending back to mid-2015. Below that there is minor support at $30 and $28, with more significant support between $25 and $24. The ideal shorting location is around $35, with a stop loss above $36. An initial target can be placed near the $30 support area. More aggressive or longer-term trade targets can be placed near the lower support levels.
Realogy Holdings Corp. (RLGY) has been sliding lower since mid-2015. The stock hit a low of $21.43 in November, moved slightly higher and then stalled between $23.99 and $24.93 for seven trading sessions. On Dec. 1 the stock fell below $23.99 indicating the move higher may be over, and another move to the downside is commencing. Shorts can be taken just below $24, with stop loss orders above $25. The initial downside is $20.40 to $20.
Manhattan Associates, Inc. (MANH) saw a sharp drop at the start of 2015. That drop reversed the prior uptrend. The stock in now in a long-term (based on that sharp drop) and short-term downtrend, as the price been moving lower throughout the second half of 2016. While there is long-term potential for this stock to continue declining, the current focus is on the descending trend channel in place since July. Look to get short near the top of the channel, between $54 and $53.40, with a stop loss above $55.10. The downside target is the bottom of the channel, near $46. That target is also just above the February low of $44.14 which is a potential support area.
The Bottom Line
Not everyone is comfortable shorting stocks, yet it is a viable way to profit if the stock you are shorting drops in price. While these stocks could benefit from a market-wide selloff (if the S&P 500 declines), these stocks are already showing price weakness, therefore may continue to fall even if the S&P 500 moves higher in December. There are no sure things in trading, though, which is stop loss orders are used to help manage risk in the event the prices of these stocks rise.
Disclosure: The author doesn't have positions in the stocks mentioned.