Last week, I analyzed the broad market for you using three ETFs that track the three major indexes:
- DIA which tracks the Dow Jones
- SPY which tracks the S&P 500
- QQQ which tracks the Nasdaq
In that post, I showed you how I could tell the broad market was weakening… or at least how it wasn’t as bullish as it had been for the last few months.
That was Thursday.
3x More New Lows Than New Highs
Now on Tuesday, we have 3 times as many stocks making a new 52 week low as we have making a new 52 week high.
Only about 7 stocks really qualify as making new highs according to my custom-built TrendPoint software.
Meanwhile, there are 40 or more making new 52 week lows.
That’s a real tell-tale sign that the market has cooled off.
Now the market’s stuck between being bullish and bearish.
But when you have 3 times as many stocks making new 52 week lows as you have making a new 52 week highs…
That tells you that maybe there’s some more money on the short side.
Spotting Bearish Opportunities
I haven’t talked about shorting stocks in forever, but I’m going to give you a few tips:
First, stocks fall a lot faster than they go up.
The joke is that “Stocks take the stairs up and they take the elevator down.”
That’s just one of the best parts of being in a small bearish condition like we seem to be in right now. Things can move really fast.
Second, you can find really great stocks to short just by finding a list of stocks that have hit a new 52 week low.
Remember when I talked to you about being in a stock picker’s market and how you can find stocks that are going up even in a bear market?
Well, I also have a set of rules for spotting sinking stocks:
- New 52 Week Lows – Find a stock that’s making new 52 week lows. You can do that on ****this page.
- Over $100 – When you pick one of these new 52 week low stocks, it’s best if the stock is over $100. That way, psychologically, it seems to have more room to fall. I wouldn’t short a low-dollar stock.
- 4-6 Month Downtrend – It should be trending down steadily for 4-6 months, consistently making new lows.
- Over 500,000 shares average daily volume
- Must trade on a major exchange
- Must have tradeable options
Free Filtering Tools
I use my custom-built TrendPoint software to filter out stocks that don’t meet these rules.
But you can do the same with some free tools.
First up, these pages will give you lists of stocks hitting new 52 week lows:
- Wall Street Journal – New 52 Week Highs and Lows (scroll down to lows)
- Barchart – 52 Week New Lows
- Yahoo Finance – Recent 52 Week Lows
- Barron’s – New 52 Week Highs and Lows (scroll down to lows)
Next, you’ll have to use a tool like this FinViz scanner to set the rules like minium price, average daily volume and so forth.
And finally, use this trend spotting tutorial to verify the 4-6 month downtrend.
Roll Up Your Sleeves
So start to look at some of those higher priced stocks that are coming down.
And remember, you don’t have to short 100 shares. You can just short a single share.
Or you can even paper trade it to make sure you work out all the kinks before you risk real cash.
Get some practice before you go to the big leagues, you know what I mean?
Trade well,
Jack Carter
