Loading up on lemons

I said yesterday that if the market declined today that I would identify candidates for shorting strategies among the major indices. I have to laugh at myself because it’s almost like shooting fish in a barrel since almost every stock out there is deteriorating. But I need some content, and this is the best I can do at the moment. (I need a vacation!)

Lemon selection
My basket of lemons are selected from the top 25 holdings of the Russell 2000 (mostly healthcare, utility, and technology stocks), the NASDAQ composite (mostly tech and biotech), and the S&P 500 (mostly large tech companies and conglomerates). My selection criteria was based on technical analysis only; fundamental analysis is left to you, dear reader. (Hey, I can’t do everything!)

The worst of the Russell 2000
Two of the three lemons that I found not surprisingly came from the badly beaten down commercial real estate industry. Both Realty Income (O) and Senior Housing Prop. Trust (SNH) have recently broken major support. Realty Income is currently trading around $16 and has its next minor support level at $14.50. SNH is trading at $12 and is shortable down to the $10 level where it, too, has minor support. Both of these stocks pay a decent dividend which you don’t get if you’re short the stock, alas.

Wabtec (WAB) is a railroad that’s currently priced just below $31. It recently broke major support and is chugging downward to test $26 support.

The worst of the NASDAQ
Apart from the financial CME Group (CME), the rest of the dogs are all well-known members of the tech sector. And speaking of the financial and technology sectors, the financial spyder (XLF) along with the semiconductor holder (SMH) are at historic lows which means we’re definitely in good lemon-picking country. (Their monthly charts are below.) All of the following have broken major support except for Google and Qualcomm which are sitting right on it (and I expect that their support will not hold):

Applied Materials (AMAT): Current price = $8.42. Next support around $6.50.
CME Group (CME): Current price = $170.88. Next support around $144.
Cisco (CSCO): Current price = $15.08. Next support around $13.
Intel (INTC): Current price = $12.49. Next support around $9.
Amazon (AMZN): Current price = $35.84. Next support around $32.
Google (GOOG): Current price = $280. Next support around $220.
Qualcomm (QCOM): Current price = $30.01. Next support around $27.

The worst of the S&P 500
My top six picks from this index include Cisco, Intel, and Google mentioned above as well as General Electric (GE), Bank of America (BAC), and Citigroup (C ). These last three are trading at twelve to fifteen year lows and they’ve all broken major support levels. Where they eventually land is anyone’s guess, but I’d aim for the $10 level on GE and B of A ($3-$4 moves), and $3 or even less on Citi (a $3+ move).

More lemons: The bailout banks
You would think that the stock of the banks that got bailed out by the government would be doing okay, wouldn’t you? Uh-uh. Prices on all of them have fallen off a cliff; Goldman Sachs and Morgan Stanley are trading at their lowest point EVER with none of them show any signs of forming a bottom. Here’s the list for your shorting pleasure: Goldman Sachs (GS), Morgan Stanley (MS), Merrill Lynch (MER), JP Morgan (JPM), Bank of New York Mellon (BK), State Street Corp. (STT), Wells Fargo (WFC), and two from above Bank of America (BAC) and Citigroup (C ).

This list should give you enough lemons to make a huge pitcher of lemonade which will hopefully put some profit in your pocket. If you do put on some shorts, remember to keep a daily watch on the VIX. When you see a spike, that’s your cue to exit. The tricky thing about short positions is that the price can quickly move against you so you need to keep on your toes. Shorting is not for the faint of heart or weak of stomach!

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