5 Short Trade Ideas for 2011: Weaklings Lagging the Current Rally

5 Short Trade Ideas for 2011: Weaklings Lagging the Current Rally

The current headline on Google Finance is a Bloomberg story crowing about the S&P’s 86% (!) rally off the March 2009 lows.  The S&P has traded up 17 out of 22 trading days in December (Source: Elliott Wave International), and has rallied pretty much non-stop for 4 months now.  A rally which, fittingly, kicked off in convincing fashion in September, that historically awful month for stocks.

S&P Price Chart Forecast 2011Since the August scare, it’s been up, up, and away for US stocks.

(Source: StockCharts.com)

Investor sentiment has reversed 180 degrees since early September, when everyone appeared convinced that we were on the precipice of a major crash.  Bullish sentiment now exceeds frothy levels seen at the 2007 all-time stock market top, according to the latest AAII poll.

Furthermore, I have not yet seen a bearish forecast for 2011 from anyone other than Robert Prechter – and while I am a subscriber of his and very much respect his research, we know that it’s only news if Prechter is bullish, not bearish.

So, while the market appears to be teed up for an early 2011 decline, there are a couple of reasons why I’m not going to short the broader market:

  1. The trend is still up – don’t want to fight the tape
  2. And more importantly, I’ve been unsuccessful in my attempts to short the S&P 500 🙂

But some selective shorting may be an interesting play for 2011 – particularly if we can find weakling laggards who have not participated in this 4-month rally.

With that in mind, I searched for some ugly looking charts, preferably those dressing up uglier business prospects.  An ideal short candidate would be one that Mr. Market is already targeting as potential lunch fodder for the year ahead – if you couldn’t rally over the last 4 months, that’s a pretty decent tip off.  And if the longer term chart is also in a downtrend, so much the better.

Please note that these are all shorter term short trade ideas, based primarily on foreboding technicals, with a sprinkling of fundamentals as a sanity check.  I do not (yet) have short positions in any – if I were to initiate one or more after this article publishes, I’d likely keep a trailing stop pretty close by.

TIB Financial Corp (TIBBD)

Leading off is a real dog that impressively just made a 5-year low, TIB Financial Corp (TIBBD) – can you spot the trend?

Tib Financial Corp

TIB heads towards zero. (Source: StockCharts.com)

TIB, a Florida-based bank holding company, received a cash infusion of $175 million from North American Financial Holdings Inc. in September.  It didn’t take long for the market to pan that development.

Short interest, while high, is not out of whack with previous levels. I don’t see any recent insider buying to speak of.  This dog warrants further investigation – the stench is quite impressive.

Bank of America (BAC)

B of A’s chart looked quite ugly heading into December – it’s since rallied, but merely to the point of previous price resistance.  Overall, BAC sports a series of lower low’s and lower high’s, and it remains below it’s 200-day moving average.

Bank of America BAC stock price chart january 2011

BAC rallies, but faces upper resistance (Source: StockCharts.com)

Because there are little free market factors that seem to affect BAC’s price these days, I will not bother with a discussion of any relevant fundamentals – I’m not sure there are any.  From a pure trading standpoint, a short position initiated here, with a close stop around $14.50, may present an interesting risk/reward.

Canadian Solar (CSIQ)

Few industries can destroy capital as quickly as clean energy – so when I saw Canadian Solar (CSIQ) pop up on my stock screen, I giddily pulled up this 6-month chart:

Canadian Solar CSIQ stock price chart january 2011

While crude oil sits at a multi-year high, CSIQ has impressively dropped to 3-month lows.  The only concern I have with the chart above is that the 3-month price action appears to be tracing out a descending triangle, which usually pops to the upside.  So we’ll keep this one on the short wish list for now while we watch for a further breakdown – preferably below August levels.

Club Med vs. Up and Coming Asia

For an entrenched downtrend that rivals TIB, check out Italian stocks vs. Singapore’s market:

EWI EWS ETF Price Chart 2011

The 3-year trend of Singapore stocks outperforming their Italian counterparts shows no signs of slowing down. (Source: StockCharts.com)

(Hat tip to my friend Brian Hunt for highlighting the Europe vs. Asia trend often in his DailyWealth columns.)

Europe is socialist, aging, and saddled by a host of sovereign debt and social problems.  Asia is younger, harder working, and proving to these days be better capitalists that us Westerners.

Singapore is about as good of a proxy for what’s right with Asia as Italy is for what’s wrong with Europe (at least in pure economic terms) – and just wait until Italy’s debt problems come to a head.  Intellectually I see no reason for this trend to reverse anytime soon, and the charts appear to support this view.

Wind Energy vs. Oil

Pickens Plan aside, wind energy has been a complete dog when compared with good old fashioned crude oil – check out THIS chart:

PWND Oil Wind Energ ETF Price Chart 2011

The tree huggers can have their wind energy – us speculators will stick with crude for now! (Source: StockCharts.com)

The PowerShares Global Wind Energy Portfolio (PWND) was down over 36% by itself in 2010!  Wind energy, like its solar counterpart, continues to chew through capital without achieving much of an ROI.  Crude’s rally above $90 in 2010 did not help.

Lest you think I am a clean energy hater, please allow me to present you with a rare BULLISH chart of the only economic clean energy source we have today: Geothermal.  And the chart is bullish (per Nevada Geothermal), when priced in the black goo, to boot!

Nevada Geothermal Crude Oil price chart 2011

Geothermal: The ONLY clean energy approved by Mr. Market. (Source: StockCharts.com)

Best of luck with your trading in 2011!