Two More Bearish Bets for Traders
Looking for stocks that might move lower in the next few days? With the stock market temporarily overbought and overextended to the upside, stocks are likely to pullback. For some stocks, this pullback is likely to be the pause that refreshes. These stocks are stocks in a generally bullish mode that will be subject to profit-taking before continuing to move higher.
For other stocks, however, the pullback may be a prelude to even lower prices. These are stocks in a generally bearish mode that have benefited from the broader market’s near-vertical rally over the past two weeks. When the stock market pulls back, these weak stocks are exposed, revealed for the coat-tail riders they are. These are the stocks that often fall
— and sometimes fall hard — while the rest of the market is merely pulling back and digesting recent gains.
One way to find some of these stocks, the poor stocks that have been hiding behind the broad market strength of recent days is to use our TradingMarkets Stock Indicators page. Divided into bullish and bearish indicators, we can look through the roster of bearish indicators to see what stocks are hinting that their recent highs may not be sustainable.
Two of the stocks in this category are Sirona Dental Systems
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PowerRating) and
Sonoco Products Company
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PowerRating). Both of these stocks have PowerRatings (for Traders) of 3. And both have made moves to the upside in recent days that our research says may not be as indicative of near-term strength as they seem.
Both stocks appeared in our bearish
Laps Up 5% or More screen. A “Lap Up” is similar to a gap up in the markets. The difference is that where in a gap up, the stock opens above the high of the previous session, all a stock making a “lap up” need to is to open above the close
— but not necessarily above the high — of the previous session. Our research has shown that stocks that make “lap ups” of 5% or more, tend to have a negative bias, or a bias toward the downside. This negative bias is true over one-day, two-day and one-week timeframes.
Click here to read more about trading gaps and laps.
This was the list, Laps Up 5% or More, where we found Sonoco, and what makes the stock one of our bearish bets right now.
The negative bias of lap ups is even more pronounced when the lap up is more pronounced. While a 5% lap up is considered to be a strong indicator that a stock that will have a negative bias in the near-term, a 10% lap up is all the more convincing a signal of potential near-term weakness. Our research found that stocks that make a 10% lap up have returned, on average, negative 1.22% in a week’s time.
The most notable stock in our
Laps Up 10% or More screen was Sirona Dental Systems.
It is worth noting that Sirona also made the
2-Period RSI Above 98 screen which is another one of our main bearish screens suggesting that the stock is overbought and ripe for pullback, if not correction.
David Penn is Senior Editor at TradingMarkets.com