Yesterday, I talked about one particular area of the market where stocks are still getting bought… The shipping sector.
So, yes, there are some bullish opportunities out there.
But for the most part, I continue to see weakness across the board, and I’m maintaining my bearish stance.
There are still a lot more short opportunities out there than long ones.
And the fact that the markets were down another 3% or so yesterday tells me that this selling is far from over.
So, today, I’m going to talk a bit about my shorting philosophy and check in on the short ideas from this week’s Watchlist…
Be the Bully?
No one likes to be bullied. We all know that…
But to be a successful short-seller, you need to take on the role of the school yard bully.
A bully doesn’t pick on the strong, confident kids in class. A bully seeks out the weakest of the weak to pick on.
And that’s exactly what you should do when you look for short-selling targets… Single out the weakest of the weak stocks in the weakest sectors.
It sounds a bit harsh, but it’s a much better strategy than trying to short the leader in a weak sector or a weak stock in a strong sector.
Remember… We want to do anything we can to put the odds of success in our favor, so I always try to think about this when I pick my short ideas.
With that in mind, let’s take a look at how the Watchlist stocks from Monday are shaping up so far this week…
On Monday, I wrote that Evercore Inc. (EVR) was trending lower and that it could not make it back above its 50-day moving average (MA).
Well, on Tuesday, the stock gapped higher and closed above the 50-day MA.
It gave up some ground yesterday, and there is some short-term resistance in the $14-$15 area that could easily push the stock back below the 50-day.
If you decided to short into this move, I still recommend a buy stop at $117 for protection.
Central Garden & Pet Company
Central Garden & Pet Company (CENTA) also saw a decent jump on Tuesday, but the stock gave up those gains and then some on Wednesday.
The stock has still failed to push through its downtrend line and the 200-day moving average remains just overhead. I expect resistance to hold.
If you shorted into the $42-$43 range, make sure you have a buy stop in place at $45.
Adobe Inc. (ADBE) is probably not the weakest tech stock out there, but the short setup still looks very attractive.
Shares have been unable to trade above their 50-day moving average for almost six months, and they are coming up on that level again.
I noted on Monday that I would consider selling in the $410-$425 area.
If you took the trade in that range on Tuesday, you should have seen some gains into Wednesday. Continue to work a stop at $442 for protection.
If you’re not in the trade, you could potentially get another opportunity near the 50-day MA around $425.
Waiting for the Bottom
So, yes, I’m still largely interested in short trades right now. Until we find a real bottom, I feel this is the appropriate strategy.
And we won’t know for sure that the bottom is in until we start to see massive buying by institutions.
These are hedge funds, pension funds, endowments and other trillion-dollar organizations that are eventually going to start scooping up stocks at value levels.
And when they put their money to work, following their lead can pay off big time.
This is exactly what I focus on in my premium Stealth Trades research service.
Embrace the surge,
Editor, Stock Surge Daily