I will also say that many investors seem to feel like this rising market is getting long in the tooth and many are asking for a small correction for overall market health. Some are predicting large corrections and some are predicting doom & gloom. If any of these scenarios come to pass, stocks will go lower. Weakest stocks will fall the fastest. Weakest stocks during a correction are typically weak stocks in a rising market. This post talks about 3 weakening stocks in a rising market.
All charts are weekly charts so they do take a longer time to show changes. Take that any way you want. Technically, these stocks currently look like they are going lower from here.
Zillow (Z)
Here is a Weekly Chart of Zillow
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| Click the chart for a larger chart of Zillow |
When I draw my trend lines on my chart, I see that the last candle closed below the uptrend line (UT 2) that started in May and has held ever since. If I am right about Zillow, next week's candle has to close below this week's candle. If you want to try a short position or puts, you can start your position now and keep it as long as Z is below 140ish. Please use a stop of $140ish or $144ish to protect yourself.
Whole Foods Market (WFM)
Here is a Weekly Chart of WFM
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| Click the chart for a larger chart of Whole Foods Market |
In October of 2010, WFM began an uptrend line that lasted until April of this year. For the last year, since April of 2013, WFM followed an accelerated uptrend line which ended in November of 2013.
If I were long WFM, I would like to think that I would have sold some of my position in November of 2013 when the accelerated downtrend (UT 2) ended. Now I will admit that I may have lost some money when the price went through the longer term downtrend line (UT 1) because I would have been looking for a bounce that didn't materialize. Hopefully I would have used a tight stop and got out quickly.
Once the price went through UT 1, it would only make sense to start thinking about "Puts & Selling Short". But would I have done it? I honestly don't know. This is really the whole point of me writing this blog. I guess I am trying to convince myself that it's just as acceptable to try Puts & Selling Short as it is buying calls & going long.
I know the rules! I really do! Take a look at the downtrend line that has developed since UT 2 broke. All you have to do is realize that WFM is not going meaningfully higher until it is able to cross above DT 1. So buy puts or sell short when the price is close to DT 1 and use a tight stop. I would go a step further and say that $42.50ish was resistance in mid June and may very well be resistance again the next time the price gets there. So I would say it would be prudent to try puts or selling short around $42.50ish and use a stop just above DT 1. It is interesting to me to realize that in about 4 weeks, the horizontal resistance & DT 1 will both be at $42.50ish. That would give me two reasons to try puts or sell short. I consider myself an optimist. It just seems weird to bet that a stock is going down. But the reality is I also feel I am smart enough to recognize the signs of a stock that may go down. Now I just have to pull the trigger and build some confidence.
Trip Advisor (TRIP)
Here is a Weekly Chart of TRIP
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| Click chart for a larger chart of Trip Advisor |
TRIP began UT 1 in November of 2012. The price broke UT 1 for the first time in February of 2014, the second time in April of 2014, and the third time last month. Each time the price dropped below UT 1, it came back up above it. Will this time be different??
Here is what I see in the chart. TRIP put in a double top from March to July of this year. Also UT 1and DT 1 crossed and the price followed the downtrend line. At least that is what has happened so far.
Last week's candle closed lower than the previous week's. And last weeks candle didn't get even half way back up into the previous week's candle ($101.74 is half of the previous week's range). Last week's high was $100.23.
If I were going to start a short position through puts or selling short, I would use $101.75ish as my first stop. If I needed another stop I would use DT 1 ($104ish next week).
If you think TRIP is just "having trouble with UT 1" and will continue to go higher then here is an investing / trading plan for you. First thing you need to do is draw an uptrend line from the lows in April to the lows in August. You can call it UT 2 if you would like. But in my world, UT (x+1) is always above UT x. You will need to open a math book if that last sentence freaked you out :)
Now you should notice that last week's low was right at your new trend line. It held so that is good. In the coming weeks, TRIP has to stay above your new trend line. If it does, the real test will be when your new trend line meets DT 1. Whatever happens there should be your insight into what may come next.
The cool thing about investing is that no one really knows the future. So when you look at a chart and say, "I think it is going up/down from here", you have a 50/50 chance of being right. Those are great odds. Trade what you see. It is just as correct, at the moment, as what anyone else sees. Time will ultimately prove you right or wrong.
The key is to give your thesis some parameters. You should pick an event or $ level that proves you are wrong. If that event or $ level occurs, then admit you are wrong and get out of the way. You can decide to stay away for a little while and then try again or you can choose to invest or trade with the price action that is actually taking place. If you struggle with this aspect of trading then "join the club". We all struggle with this...
Amazon (AMZN)
All the financial media is talking about Alibaba (BABA). Fact is Alibaba is bigger than Amazon & Ebay put together. Also, Alibaba has profits and Amazon doesn't. Which stock would you invest in?
I know that I tend to "raise money" to get into a better investment. Do big investors do that too? I think they do. If I am right, that may explain why AMZN has been dropping since the beginning of this year. Then again, maybe there is no correlation at all.
Although AMZN has been a great investment since 2009, is AMZN going to continue to be a great investment now that BABA is almost available to own. Hedge funds like to choose one stock to play to the upside and another to play to the downside. Could that combo be AMZN (down) and BABA (up)?
AMZN is currently between an uptrend line and a downtrend line. The downtrend line is at about $355ish for next week. If AMZN is going down it shouldn't get above there. The closest uptrend line is, although very short, is about $340ish. The next closest uptrend line is in the low $300s. If it gets below there, the next uptrend line is in the high $200s. There is some potential gain right there if you are short or buying puts...
What if AMZN goes up through the downtrend line? Well then you should be playing it long. There is potential resistance at $365ish, then at $380ish, then at all time highs of $405 to $410. There is some potential gain right there if you are long or buying calls...
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As you can tell by my scenarios, I am not making an up or down call. I don't know the future. All anyone can do is invest or trade based on what they see.
Trade what you see... Not what you think, or feel, or hope, or ...
The trend is your friend... Until its not
Limit risk & protect profits
