Bear Chart of the Day: Wait Until Clorox Cleans Up Its Act

NEW YORK (Real Money) -- "Chlorophyll? More like borophyll! Right?" Sometimes Billy Madison wisdom fits the markets. For now, boring is as good as bearish. Mergers are lighting up the screens, but there's a lot of choppy action. 

While recently I discussed a name considered somewhat "boring" and argued this wasn't a bad place, today I will counter that with a boring stock that looks like it is going to stay boring -- not only in terms of news, but also price action.

Clorox (CLXtakes the prize today. This is a short-term call as the long-term picture still looks boring as well.

Until Clorox takes out new highs in terms of price, I don't think we get a good entry unless we are lower. Short of a rumor where a big name takes a huge stake in the company, I have a hard time seeing that new high before we test lower. Price lost multiple support levels late last week. The initial pullback wasn't a problem -- well, at least not at first. At first, the pullback simply looked like a bullish flag consolidating the May bounce; however, something changed over the last week. The stock failed to bounce off the first support (blue solid line) and managed only a one-day bounce off the secondary support.

Resistance (downward-sloping blue dotted line) has now taken control. Upside looks like a dollar here, while downside is at least twice that, if not more. These aren't the risk-reward metrics I like to see on a stock if I'm bullish, but I do like this type of setup to start thinking bearish.

I'm short CLX at $107.62, but not just based on the price action. The relative strength index (RSI) is comfortably under 50, showing bullish momentum has slowed down considerably. The last stock bounce did not come until we saw a 30 reading on the RSI. Furthermore, the slow stochastics saw a bearish crossover while in overbought territory a little over a week ago. In the past, using the price where the crossover occurred as a stop has resulted in tolerable losses, but potentially outsized gains. That stop is about $2 higher from here, so not much in terms of percentages.

Lastly, there is a nice bearish push on the Chaikan Money Flow. Bearish momentum, trend and price action in terms of volume are picking up to the downside. Of course, if the market pushes significantly higher, then I expect to be stopped, but I also anticipate my bullish positions will outperform CLX. A short here adds a nice boring balance against some long names.

Editor's Note: This article was originally published at 11:30 a.m. EDT on Real Money on June 1.

This article is commentary by an independent contributor. At the time of publication, the author was short CLX.

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