The bulls have returned to the driver’s seat at home as evidenced by the S&P 500′s steep rebound following the short-lived pullback that was sparked on the last trading day of July. Easing tensions between Russia and Ukraine and a (temporary) ceasefire in Gaza welcomed back buyers on Wall Street after the S&P 500 managed to sink about 4% in just two weeks [for more commodity futures news and analysis subscribe to our free newsletter].
The recent rebound however isn’t luring everyone back as many pundits are still calling for further downside amid looming risks; more specifically, the bears still feel that a surprise move, or merely a hint, from the Fed regarding the timing of the first rate hike can still spook markets and spark another round of profit taking pressures.
In light of the continued bull run amid uncertainty at home and tensions overseas, below we highlight two commodity stocks that may offer an attractive short selling opportunity for those looking to bet against some of the stellar run-ups already seen across Wall Street.
The stocks included here are deemed to be great trading candidates for three reasons. First and foremost, each of these companies boasts a market cap upwards of $1 billion along with average daily trading volumes topping the $1 million mark, in an effort to weed out smaller, more volatile, trading prospects.
Second, these securities are trading below their 200-day moving averages, thereby implying that they are in longer-term downtrends. Lastly, these stocks are also trading above their five-day moving averages, which makes them attractive for swing traders looking to sell short before they resume their downtrend. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques [see How To Lose Money Investing In Commodities].
Consider MT’s one-year daily performance chart below.
This stock has been trading within a downward slopping channel (red lines) since forming a double-top just shy of the $18 mark in January of 2014. Since then, MT has managed to sink right through its 200-day moving average (yellow line) while posting lower-highs and lower-lows along the way. Despite the recent rebound, we feel that selling pressures may soon return here given the longer-term downtrend at hand; as such, we advise taking a short position with a tight stop-loss if MT fails to summit the $14.50 level in the coming days.
Transocean LTD (RIG)
Consider RIG’s one-year daily performance chart below.
This stock has been trading lower within a crudely defined downward slopping channel since peaking at $55.74 a share in early November of 2013. Since then, RIG has managed to sink through its 200-day moving average (yellow line), while posting lower-highs (red line) and lower-lows (blue line) along the way. While the recent sideways price action seen in August may be lucrative for “bottom pickers”, we feel that selling pressures may soon return given the longer-term downtrend at hand. As such, we advise taking a short position when RIG gives a clear sign of failing to summit resistance, perhaps between $42 and $45 a share.
Disclosure: No positions at time of writing