Three Swing-Trade Shorts With Significant Catalysts

Do not let the headline numbers on the Dow, S&P and Nasdaq on Wednesday fool you – we are seeing a second consecutive day of market weakness despite only modest losses thus far for the Dow and S&P and a jump of 0.7% in the Nasdaq. The entire U.S. stock market was propped up for two reasons on Wednesday - Microsoft MSFT and Amazon AMZN. Nvidia NVDA shares helped things as well. 

At last check, Microsoft was up over 7% after a stellar earnings report. Amazon was last trading up better than 3% as Wall Street awaits the e-commerce giant’s earnings after the close of trading on April 27. Nvidia is benefitting from news that Microsoft has big spending plans on AI infrastructure. 

Nevertheless, most stocks are down on the day and the heat map is filled with red. The way that traders could interpret the day’s price action, is that the market is continuing to roll over and more losses are likely on the horizon. Here are three stocks that seem to be setting up for short positions in the coming days and into the beginning of next week. 

All three of these names are down big on Wednesday and have sustained significant technical damage to their charts as a result of downside catalysts. Be forewarned that the likelihood of some kind of snap-back move in the next couple of days is absolutely possible - if not likely - but for technical traders that take short-term swing positions based on price-action and what the charts are saying, these names are ripe short plays. 

Activision Blizzard ATVI

ATVI shares plunged on Wednesday after UK regulators blocked Microsoft’s proposed $95.00 per share offer for the video game publisher. At market close, ATVI was sitting at new intra-day lows, down 11.45% to $76.81. There are a number of considerations here, the first of which is that this news has generated a tremendous whipsaw of sentiment. On Tuesday, ATVI closed at new multi-year highs. 

On Wednesday, there were a lot of trapped bulls that had been buying into the strength in the stock in recent weeks anticipating making a tidy sum if and when this deal closed. Secondly, the huge sell-off in the name has caused tremendous technical damage to the chart, with the stock punching through not only the 20 and 50-day moving averages, but also taking out the 200-day with almost no resistance. 

There are two upcoming support levels, however, that could attract ATVI buyers at $74.00 and $72.00. The downside volume on Wednesday has been massive, with relative volume running over 9x average. If we were to continue to see weakness in tech in the coming days and overall sentiment continues to deteriorate, the likely level for this stock in the near term is $72.00 or even lower. Cautious traders that want to see more price confirmation of sustained weakness in ATVI should keep an eye on the $74.00 support level if it is tested on Thursday or Friday as a clean break here, which should trigger a short position in the name.

Enphase Energy ENPH  

The thesis in this name is straightforward and simple. Enphase Energy was a weak chart that has been transformed into a decimated chart, with weak underlying supply/demand fundamentals for the stock, deteriorating business prospects, and a fresh downside catalyst on which the market absolutely hammered the stock, confirming bearish overall sentiment. 

On Wednesday, Enphase plunged nearly 26% on the session to $163.83. Volume, obviously, was massive. The catalyst for the sell-off was lowered Q2 sales guidance – a development that we can clearly see the market was not expecting. Year-to-date, ENPH has now shed a little more than 35% in a rising market. 

Furthermore, Wednesday’s sell-off has taken the stock’s price through all near-term support levels and well below all moving averages and trendlines. From a technical perspective, Wednesday’s move was essentially catastrophic looking in terms of the near-term trend, which is likely far lower. 

After such a dramatic correction, a day or two of strength would not be surprising, but this setup has almost all of the key factors that traders should want – an underlying supply/demand imbalance to the bear side which could be observed prior to the downside catalyst, a downside catalyst which confirms weakening business fundamentals, obviously bearish sentiment and price action, and a chart that has been devastated in terms of the technical outlook. 

TFI International TFII

This is another very attractive short set-up that the market has offered up in just the last couple of days. The catalyst in TFII is the company’s Q1 earnings results, which missed Street expectations and sent the stock careening on Wednesday, down more than 11% to close at $102.00. 

The underlying supply/demand fundamentals in TFII shares were not outright bearish prior to this catalyst, but they were clearly deteriorating as the stock made a series of lower highs in recent weeks and had been rejected at the $120.00 level three separate times since mid-March. 

In the wake of Wednesday’s big sell-off, with the stock closing right near the lows of the day, the technical picture for TFII has turned into little else besides gathering storm clouds. 

The best part about this particular set-up is that the stock’s price is approaching an extremely defined level at $100.00, which has alternatively served as support and resistance over and over during the last 9 months. TFII could see the $100.00 level as early as Thursday morning and a definitive break on increased volume will provide market confirmation that the path of least resistance in this name will continue to be lower. 

Featured Photo by Sebastian Kurpiel on Unsplash