Major benchmarks have posted impressive gains in 2019, but many stocks have slumped to multi-year lows during the period, raising the odds that they'll get sold aggressively into year end to lower capital gains tax bills. Ironically, this tax-selling pressure can attract significant buying interest when the calendar flips into 2020 and the "January effect" encourages the same folks to pick up beaten-down equities in hopes of a turnaround.
Traders looking to sell short these laggards should place tight stops and take opportune profits because there's less than four weeks left in 2019. Issues that have recently broken support levels may offer the strongest returns because technical selling pressure should supplement highly negative seasonality. It will also help if broad averages lose ground at the same time, which is likely if President Trump doesn't cut a trade deal with China in the next 10 days.
TripAdvisor, Inc. (TRIP)
TripAdvisor, Inc. (TRIP) sits at the dead bottom of the S&P 500 component performance list, dropping 47% since the first trading day of 2019. The stock posted an all-time high at $111 in 2014 and entered a downtrend that paused in 2017 after finding support in the low $30s. The recovery wave ended in November 2018 after reaching the 50% rally retracement, while selling pressure through 2019 has just broken the 2017 low.
The 2011 all-time low at $23.99 marks the next downside target, with a breakdown at that psychological level likely to raise doubts about the travel site's long-term viability. Expedia Group, Inc. (EXPE) could potentially buy TripAdvisor and put a floor under the stock price, but the blue chip has also underperformed in 2019 and has just broken the December 2018 low, making it an attractive short selling candidate as well.
Apache Corporation (APA)
The energy sector has been a disaster in 2019, with the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the VanEck Vectors Oil Service ETF (OIH) trading at or near all-time lows. December short sellers can take advantage of this structural weakness with Apache Corporation (APA), which is trading at an 18-year low in the upper teens. Better yet, it just violated August support at $20, adding technical selling pressure to end-of-year headwinds.
The stock posted an all-time high at $145 in 2008 after a multi-year uptrend and sold off, entering a secular decline that has carved a long series of lower highs and lower lows. Selling pressure eased in 2015 at the .786 Fibonacci retracement of the 1999 to 2008 rally, giving way to three years of testing, followed by a November 2018 breakdown. This sets the stage for continued selling pressure that eventually reaches the 1999 low in the single digits.
DXC Technology Company (DXC)
DXC Technology Company (DXC), formerly known as Computer Sciences Corporation, bounced into November 2019 after posting an all-time low at $26.02 in October. The oversold bounce has been struggling at resistance for the past four weeks, while weekly relative strength indicators have hit overbought levels and are starting to cross over, raising the odds for a decline that tests the fourth quarter low into year end.
The stock's current incarnation began in 2017 with the merger between CSC and the Enterprise Services division of Hewlett Packard Enterprise Company (HPE). A healthy uptrend topped out in the mid-$80s in October 2018, giving way to a cascading decline that accelerated to the downside with a 13-point gap in September 2019. The fourth quarter bounce has stalled just a point under heavy resistance at the gap bottom, setting up a potential low-risk short selling opportunity.
The Bottom Line
The market's worst performers could post even lower lows into the end of December, with the 2019 tax selling season now in full swing.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.