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3 Stocks on the Brink of a Major Breakdown

Tyler Craig

A toxic brew of bearish narratives is hampering stock prices. From a resurgent trade war and plunging bond yields to seasonality, traders have a wide array of bogeymen to blame for this month’s losses. Investors seeking stocks to sell have no shortage of candidates. Downtrends are multiplying like rabbits.

Since peaking at $2,954 on May 1, the S&P 500 has fallen 171 points or 5.8%. While we’re a far way off from official correction territory, the selling has been more than enough to scare the children. Some indexes, like the Russell 2000, have fallen back below the 200-day moving average, flashing long-term bearish signals.

Against this backdrop, we present to you three stocks to sell that are on the brink of breaching support zones. These so-called breakdowns provide attractive opportunities for bear trades.

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Let’s take a closer look.


Square (SQ)


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Source: ThinkorSwim

The rollover in Square (NYSE:SQ) intensified after its early-May earnings report. And dissatisfied investors have been leaning on the sell button ever since. The latest rejection occurred this week when Tuesday’s rally attempt faded fast at the declining 20-day moving average. Yesterday’s downside follow-through revealed sellers’ strength and brought SQ stock to the brink of another breakdown.

Viewed together, the past three weeks of chop have formed a low base pattern. All we need now is a support breach of $62 to send the shares skidding.

Square carries an implied volatility rank of 20%, suggesting options are cheap. If SQ breaks below $62, then consider buying the July $65 puts.


General Electric (GE)


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Source: ThinkorSwim

Ever since the selling in General Electric (NYSE:GE) reached a fever pitch last December, the downside pressure has eased. Much of this year’s price action has seen the struggling conglomerate settle into a volatile trading range. Unfortunately for bottom fishers, the 200-day moving average has proven to be a bully delivering knuckle sandwiches to anyone touching his turf.

We’ve seen no less than ten separate attempts to climb above the 200-day with each ending in failure. On a bullish note, support at $9 has thus far held firm, but yesterday’s successful test has me wondering if its days are numbered. If the $9 floor gives way, GE stock has a long way to drop before reaching last year’s devilish lows of $6.66.

If we break support, then buy the Aug $9 put options.


CVS (CVS)


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Source: ThinkorSwim

Oh, how the mighty have fallen. Up until 2015, CVS (NYSE:CVS) was a beast of a stock, boasting one of the strongest uptrends on the Street. But since peaking at a lofty $113.65, the drugstore chain has fallen 53% to $52.82. And its technicals still look terrible with the stock submerged beneath all moving averages and a banana peel away from breaking critical support at $52.

Its last earnings release saw a sharp up gap that had the potential to spark a recovery. But it fizzled as fast as it arrived. Behavior like that confirms sellers reign supreme and overhead resistance remains alive and well. Over the past four months, $52 has become a big-league floor. It has halted about four different selloffs, but I suspect it could be weakening.

If CVS stock can break below $51.70, then buy the Aug $52.50 puts.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

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