With stocks stalling near overhead resistance, now is a good time to take a look at which sectors — and which individual issues — are poised to suffer the most. For those looking to make a few trades on the short side over the coming days, here is a look at a few good candidates.
iShares U.S. Oil & Gas Exploration & Production (NYSE: IEO)
Energy stocks are some of the weakest issues on the board — and the IEO exchange-traded fund really illustrates that. The fund invests in the likes of Apache (NYSE: APA) and Pioneer Natural Resources (NYSE: PXD). As you can see in the chart above, the IEO has been tracing out a pattern of lower highs since April. With shares now oversold again, look for IEO to decline to support around $46 — which would be worth an 8% move from here.
Energy stocks has been pulled down by crude oil — which lost more than 4% this week on concerns over the global economic recovery as well as weak gasoline demand. If you are looking for individual stocks in the sector, Oil States International (NYSE: OIS) is worth a look.
Developers Diversified Realty (NYSE: DDR)
Developers Diversified Realty (NYSE: DDR) is a real estate investment trust that specializes in retail shopping centers. Shares are tracing out a pattern similar to the energy sector — setting a pattern of lower highs since April. With shares overbought, and with volume coming out of the stock over the past month, DDR looks set for a decline to support near $10. Such a drop would be worth a 10% gain for a short seller from current levels.
As a group, real estate stocks have returned to their late April high. That’s impressive, considering the broad market is still down nearly 8% from its old highs. But with momentum waning and volume trends indicating distribution over the past few months, a breakout to new highs for real estate stocks looks very unlikely.
MGM Resorts (NYSE: MGM)
MGM Resorts (NYSE: MGM) is the eponymous operator of the MGM casino in Las Vegas as well as various other casino resorts and golf courses around the world. Shares have been under heavy selling pressure since April — and the pressure shows little sign of relenting. The short-term overbought condition should result in a decline to late August support near $9. Investors heavily sold the advance to the late April/early August high, and the rally over the past few weeks has done little to whet their interest.
Disclosure: The author does not own or control a position in any company mentioned.
Be sure to check out Anthony’s new investment advisory service, the Edge, which is launching this month. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.
