Bullish euphoria continues to permeate Wall Street as evidenced by the S&P 500′s seemingly perpetual ascent into previously uncharted territory. Economic data remains mixed however and investors are finding it harder and harder to blame the slowdown on the nasty winter weather, which is why U.S. equity benchmarks have largely traded sideways following the most recent employment report from March 7th [for more commodity futures news and analysis subscribe to our free newsletter].
While sideways price action on Wall Street is by no means outright bearish, the fact that U.S. equity benchmarks remain near all-time highs leads us to conclude that any negative surprises can spark a steep sell-off. Sideways price action can also be interpreted as a sign of complacency, and given the market’s stellar run-up coupled with an upcoming FOMC decision on March 19th, many investors are rightfully waiting on the sidelines before going “all-in” so to speak. As such, 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].
ConocoPhillips (COP)
Consider COP’s one-year daily performance chart below.
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This stock has managed to rebound steadily since sinking to a low on 2/5/2014. What’s worrisome however is that the stock has started to pump the breaks right underneath $68 a share; notice how COP previously failed to summit this very same level at the start of 2014 before proceeding to sink below its 200-day moving average (yellow line). While the recent rebound may seen as a decent entry point for long positions, we’re keeping an eye on the medium-term trend at hand which remains bearish as evidenced by COP’s lower-highs (red line) and lower-lows since peaking at $74.59 a share in late October of 2013.
Rosetta Resources Inc. (ROSE)
Consider ROSE’s one-year daily performance chart below.
Click to Enlarge
This stock staged an encouraging rebound over the past month, although bearish pressures appear to be on the horizon as it approaches $50 a share; notice how ROSE failed to summit this same resistance level (red line) on two occasions, first in mid-December of last year and most recently on 1/23/2014. The medium-term trend at hand remains bearish, which is why we recommend taking a short position if ROSE fails to summit resistance again over the coming days.
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Disclosure: No positions at time of writing
