(By Rich Bieglmeier) According to our take, technical, market models, and economic indicators point to the stock market shaving more off. Despite the ego hit, we hope that we are wrong as a great majority of investors only make money when the stock market goes up.
In the event our tools are working correctly, iStock has identified a couple of stocks with bright red X marks the spot to sell on their stock charts. Keep in mind, the analysis is purely technical, and many number crunchers may disagree with our viewpoint.
We will start with the biggest name of the pair, Amazon.com Inc. (AMZN). The online retail giant popped following its quarterly profit checkup. Its share price gapped from $196 to $226 overnight.
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The low price for shares on gap day is $220. If the market continues to slide and draws Amazon in, iStock would have the short tickets all filled out for a close under $220. It would open the door for traders to fill in the gap, at least partially, to the company's 200-day moving average of $200, with a possible intraday price that touches earnings eve's $196.
To limit losses if the short signal is triggered, iStock suggest a stop loss if the stock closes above the break point of $220.
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Broadcom Corp. (BRCM) is another brand name tech company whose price is dangling above danger. The communications chip maker's stock is twirling right below its 200-day average. As a rule of thumb, many chart watchers use the 200-day as a bullish/bearish benchmark. If conditions warrant, stocks above the longer-term trend line are considered buy candidates, and those below short possibilities.
In BRCM's case, it is sitting on a multiple support level at $34. If shares close below the three time backstop, Broadcom's price is likely headed to $31, maybe as low as $29-$28.
Like our Amazon example, we suggest limiting losses with a stop. Consider using the 200-day average as your guide if BRCM closes below $34 and you take a short position.
Option traders could also consider buying puts (or writing naked calls) against with stock if they pass out technical points of no return. Any wind-down could take a couple weeks to a month or so to unfold. In Amazon's case, we would probably choose the July 220 puts.
For Broadcom, the June 35 puts are already in the money, and that's where we would probably look to capitalize if we get the go signal.