The stock market rally continues into the final week of trading this year, but the longer this advance off the November low continues, and the more overbought the major indices become, the more the opportunity for greater profits shifts to the short side.
These three stocks have all been in bearish divergence to the broader market for the last two weeks, and are currently testing key horizontal support levels.
Breakdowns have the potential for sharp downside moves.
Parametric Technology (PTC) is a cloud-based human capital management software company. Its stock was up 81% from its February low this year to its November high. It failed to make a higher high this month and has pulled back below its 50- day moving average to retest the year-to-date uptrend line.
Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and is below its center line on both time frames, and the relative strength index is tracking lower and below its center line.
These readings reflect the loss of positive price momentum and a short-term shift in trend direction.
Overall volume has been weak, but Chaikin money flow has moved below its signal average and center line, suggesting the lower low is being sold.
A lower candle range close below the horizontal support zone at $45.70 is a short entry point using a position size that allows for an initial buy-to-cover stop above the 50-day average.
Shares of the off-price apparel retailer Ross Stores (ROST) have been moving in a horizontal channel after gapping higher in late November this year.
Small gravestone doji candles formed in the last two trading sessions just above channel support. These candles reflect an inability to hold higher intraday levels.
Moving average convergence/divergence has been declining in bearish divergence to the sideways price action, and the relative strength index is preparing to cross below its center line. The Chaikin money flow index and its 21-period average have both been in negative territory for the last month as buyers appear to have little confidence in a potential channel breakout.
A lower candle close that takes out pattern support is a shorting opportunity using a trailing percentage buy-to-cover stop.
United Parcel Service
In early November, the stock price of United Parcel Service (UPS) broke above the $110 level, which had acted as support over the last four months, and over the last month a rudimentary head and shoulders pattern formed above neckline support in the $115.90 area.
That support is being retested with the formation of a small doji candle in Tuesday's session positioned just above the neckline. The relative strength index dropped through its 21-period average. Moving average convergence/divergence made a bearish crossover after the formation of the head of the pattern, and accumulation/distribution crossed below its signal average. Chaikin money flow entered negative territory with the formation of the right shoulder.
The stock is a short candidate after a lower candle close below the pattern neckline using a trailing percentage buy-to-cover stop.