WINDERMERE, Fla. (Stockpickr) -- Any bullish action in the broader market today has been masking some extremely bearish behavior going on underneath the hood in market-leading momentum stocks.
Just take a look at the action in
Las Vegas Sands
-- all of which are trading sharply lower despite the overall market move higher. This is a clear sign of relative weakness among these high-beta momentum names. This is bearish activity that shouldn't be ignored.
Another issue with these names is that this is the type of behavior that is often seen when the overall market is about to enter bear-market territory. When large fund managers start to see signs that world growth is slowing, they quickly dump high-flying growth and
. If this is what's happening, then many of these market-leading stocks -- along with lots of other equities -- are going to start trading dramatically lower from current levels. Eventually, the overall market will also follow these names much lower.
I look at action like we're seeing today as a warning sign. It doesn't guarantee that the market is going to enter a big bear phase -- it could just mean we're seeing sector rotation -- but when you combine today's price movement in momentum stocks and the recent commodity slaughter fest, I think it's reasonable to start to assume the worst. Just look at the recent action in copper, which has now entered bear market territory. The market is speaking -- and as traders, it's our choice how we react to the message.
With this in mind, let's take a look at
One market-leading stock that could be setting up for much lower prices is
, which is off to a solid start in 2011, with shares up over 21%.
If you take a look at the chart for Apple, you'll see that we have some problems developing that could be setting this stock up for a big drop soon. The first thing traders should notice is that Apple broke out above $404.50 a share recently and quickly ran up to $422.86 a share. Since that breakout, the stock has now traded back below the $404.50 breakout level, which is bearish action. It's never a great a sign when a stock can't hold its breakout level after making a solid move like Apple just did.
Another big problem here with Apple is that the selling volume during the past few weeks has been expanding dramatically. We've seen selling days recently register volume of around 34 million, 29 million (twice) and 27 million shares, which is well above the three-month average action of 21.1 million shares. This large selling volume after the stock broke out is bearish because it shows me that large traders sold heavy into the recent strength.
Traders should now look to short Apple on any strength back up toward $405 a share if the stock then fails to get back above that breakout level. You could also short this stock if shares drop below some near-term support at $391.30 a share. I would consider a drop below Apple's 50-day
of $385.82 a share with volume as very bearish technical move. If Apple drops below the 50-day, then look for this stock to slide down to $370 to $366 a share. Use put options to either short this on an intraday basis off the levels I mentioned, or hold it for a longer swing trade short with a volume move below the 50-day.
The bottom line: Technically Apple is setting up for some big downside if the bears want to pound the tech sector lower in the coming days or weeks. Hedge fund traders aren't going to care about how much cash Apple has or how cheap the stock is. It just won't matter if they want to lock in gains or short this stock for some quick trading profits.
For another take on Apple, check out
Another stock that's displaying some relative weakness today is
, which has been a solid winner so far this year, with shares up over 24%.
If you take a look at the chart for Amazon.com, you'll see that this stock recently broke out above $227.45 a share and then made a nice run up to $244 a share in just a few trading sessions. Since that run, the stock has now come down and traded back below that key breakout level three times, with the most notably being today. This shows me that the stock is failing to hold its breakout price because traders are choosing to dump this stock into strength. The chart also shows that each recent bounce in the stock has failed to get shares back above $236 as well.
Traders should now look to short this stock with a drop below $220 a share and then below $219 a share on big volume. A move below those levels should setup AMZN to trade back down towards its 50-day moving average of $211.78 or possibly even lower. I would use put options to short this on an intraday basis, or for a longer swing short trade if the stock loses that key $219 level in the coming days.
For another take on Amazon, check out today's "
Green Mountain Coffee Roasters
Another market-leader that's getting crushed today and might have plenty of more downside in the near future is
Green Mountain Coffee Roasters
, which is engaged in the specialty coffee and coffee maker businesses. This market-leading stock has been a monster in 2011, with share up over 195%.
If you take a look at the chart for Green Mountain Coffee Roasters, you'll see that this stock recently topped out at around $115.98 a share after having made a monster run from its May lows of around $63 a share. During the past couple of weeks, the stock has started to print lower highs as shares have fallen to the current price of around $95 a share, which is bearish. Even worse, just today the stock has sold off below its 50-day moving average at $101.34 a share and has now lost some key near-term support at $99.50 to $98 a share.
Traders might want to consider shorting this stock into any rebound back towards the 50-day moving average that doesn't take the stock back above that key technical level. I would use put options and target a large drop back towards $83.50 or possibly even lower if today's support break is a confirmation that this stock wants to go much lower. Remember, fund managers have racked up big gains in this stock, so selling to raise some cash makes sense in front of a possible down market.
Look to short this intraday or for a shorter-term swing if you see this stock fail on any bounce and selling volume expand dramatically. Volume today is already tracking in to top its three-month average action of 2.9 million shares.
For another take on Green Mountain, it shows up on a recent list of
and was recently featured in "
Chipotle Mexican Grill
Yet another market-leader showing relative weakness today that could have some pretty good downside from here is
Chipotle Mexican Grill
, which with its subsidiaries operates restaurants throughout the U.S., as well as two restaurants in Toronto and one in London. This stock has been a market-leader in 2011, with shares up over 46%; it's one of the
If you look at the chart for Chipotle, you'll see that this is another market-leader that recently broke out and has now failed and traded back below its breakout level. In Chipotle's case, the stock has confirmed a breakout failure given its current price of around $310 a share. Chipotle triggered a breakout after the stock moved above some past overhead resistance at around $337.30 a share earlier this month. The stock only went up about 10 points off that breakout before failing and trading sharply lower.
Now CMG is triggering even more bearish technical action since the stock has just started to move below its 50-day
of $313.31. The next major warning sign will trigger if this stock takes out some major near-term
at $310 a share. A drop below that level on heavy volume should set this stock up for a sharp drop that could possibly send this stock back to its 200-day moving average of $276.25 a share.
Traders should look to play this short with put options either on an intraday basis for large swings lower once $310 is taken out with
, or for a swing trade lower below $297.70 that should easily set this up for a test of the 200-day. I really like the downside potential here, so keep this on your radar for a short sale.
One more stock that could be setting up for lower prices in the near future is
, which generates revenue primarily by delivering online advertising. This stock has been lagging so far in 2011, with shares off by around 10.5%. That weakness might be about to pick up.
If you look at the chart for Google, you'll see that this stock printed $627.50 in late July before dropping sharply to a recent low of $490.86. After hitting that low the stock rebounded back up to test its 50-day moving average a number of times, but the stock has failed to move back above it. Whenever I see a stock failing at a key moving average like the 50-day, it tells me that large traders are selling into any rallies. On top of that, Google has started to print lower highs during the past month, which is also bearish.
Now shares of Google are trading below both its 200-day and 50-day moving averages and possibly setting up to trend much lower. As long as this stock doesn't manage to trade back above both of those key moving average, then I think this could be worth a short trade. I would short this on a re-test of $547, or I would short this on a drop below $513 to $510 a share. Use put options to short this and look to play this intraday or for a few days if the selling volume really shows up.
Google shows up on a recent list of
To see more stocks that are displaying relative weakness today, including
, check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.