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Watchlist Update: Shorting Weak Stocks in a Weaker Market

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The S&P 500, Nasdaq and Russell 2000 indexes all made new lows last week.

And Friday was the 22nd consecutive day with more new lows made on the Nasdaq Composite than new highs.

Daily Chart of Nasdaq Composite Index with Net New Highs & Lows — Source: TradingView

It is clear that sellers remain in control, and we may very well see stocks continue to sell off.

Many of the growth stocks that fueled the bull market over the last two years have given up all of their post-COVID gains.

PayPal (PYPL), Netflix (NFLX), Shopify (SHOP) and dozens of other household names are down more than 70% from last year’s highs.

Last week, the Federal Reserve raised interest rates by 0.50%, which was the largest hike in 22 years.

The Fed is expected to continue raising rates throughout the year to fight inflation…

Yes, the same inflation it caused by printing trillions of dollars over the past few years.

Guilty Until Proven Innocent

To say that market conditions are poor is a gross understatement.

Billionaire trading legend Paul Tudor Jones told CNBC recently, “You can’t think of a worse macro environment than where we are right now for financial assets…”

He continued, saying, “If there was a strategy that I would want to employ right now, if someone put a gun to my head, I’d say simple trend-following strategies.”

And folks… The trend is unquestionably pointing down.

Therefore, I am only interested in short trades at this time.

I will need to see this market rally, put in a follow-through day, and then hold without further distribution before I start buying stocks again.

With all that said, here are the setups I am watching this week…

J.B. Hunt Transport Services, Inc. (Short Idea)

J.B. Hunt Transport Services, Inc. (JBHT) is a $18 billion logistics services company focused on trucks and transporting stuff via those trucks.

Here’s how the chart is setting up…

Daily Chart of J.B. Hunt Transport Services, Inc. (JBHT) — Source: TradingView

And here’s how the stock is setting up with my Stock Surge Indicator (SSI)…

  • Surge score: 64/100
  • % Above 52-wk low: 11%
  • Sales growth: +33%
  • Return on Equity: 27%
  • Triple momentum: no

JBHT is a stock we played on the upside last summer.

But price broke down in a big way last month, falling from $220 to $170 on accelerating volume.

Shares have now put in a shelf around the $165 mark where buyers appear to be supporting the stock.

If it breaks that low, consider selling short with a stop at $179.

Norwegian Cruise Line Holdings Ltd. (Short Idea)

Norwegian Cruise Line Holdings Ltd. (NCLH) is an $8 billion cruise line company operating under several different brand names with approximately 28 ships.

Here’s how the chart is setting up…

Daily Chart of Norwegian Cruise Line Holdings Ltd. (NCLH) — Source: TradingView

And here’s how the stock is setting up with my SSI…

  • Surge score: 31/100
  • % Above 52-wk low: 23%
  • Sales growth: +1,000%
  • Return on Equity: N/A
  • Triple momentum: yes

Norwegian Cruise Line has been trending lower since mid-2021.

After breaking below its 200-day moving average, the stock has been unable to rally above it.

When selling short, I prefer to do so against a resistance level like a major moving average when possible.

For NCLH, I am looking for a pop higher that we can sell into just beneath the 200-day (white line on the chart above).

The company is scheduled to report earnings on Tuesday. If the numbers are good, it might propel NCLH near the $21 level, which is where I would like to sell.

The buy stop would be on the other side of the 200-day moving average.

Summit Materials, Inc. (Short Idea)

Summit Materials, Inc. (SUM) is a $3 billion provider of construction and building materials for both residential and non-residential customers.

Here’s how the chart is setting up…

Daily Chart of Summit Materials, Inc. (SUM) — Source: TradingView

And here’s how the stock is setting up with my SSI…

  • Surge score: 40/100
  • % Above 52-wk low: 1%
  • Sales growth: -2%
  • Return on Equity: 8%
  • Triple momentum: yes (short)

Summit is a classic “broken leader” that could easily get cut in half over the next few months.

The stock advanced more than five-fold from the 2020 lows to late 2021 but has now turned south.

The 200-day line has been broken, and last month’s rally attempt failed and has now returned the stock to its lows.

The company announced larger losses than expected in its quarterly earnings report last week, which is only adding fuel to the bearish fire.

Consider selling SUM short on a move below $26.40.

Finding a Bottom

As I said above, I’m only 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.

So, if you’re interested in giving it a try, click here now to view my latest presentation.

Embrace the surge,

Ross Givens
Editor, Stock Surge Daily

The post Watchlist Update: Shorting Weak Stocks in a Weaker Market appeared first on Stock Surge Daily.

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