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Move Over Magnificent Seven—Meet the Surviving Seven

By:Tim Knight

Contrarians take note of these seven stocks with technical patterns indicating more move to the downside

There are times when the market is so amenable to bearish plays that I might accrue as many as 30 different positions. It can be a lot of work to manage so many at once, but it’s enjoyable to participate in a variety of sectors and setups.

However, in recent weeks it has become hazardous almost to the point of foolhardiness to take a bearish position on anything. In my own case, I scaled back my positions dramatically to a mere seven, keeping most of my portfolio in cash instead. These "seven survivors" are described briefly below, along with the stop-loss level I am using to exit my long-put position should the given price be violated.

First there is Caterpillar (CAT, stop loss 258.66). This stock briefly violated its ascending trendline, which suggests it will challenge it again, and the price is just beneath a well-formed top.

slopechart CAT

General Motors (GM, stop loss 33.48) had a very big move higher last week, but the ascent in price put it just beneath its substantial and long-term range, which represents the selling pressure of overhead supply. The price will have much more difficulty moving any higher than it did in recent weeks.

slopechart GM

The real estate sector fund (IYR, stop loss 87.95) has traversed nearly two full Fibonacci levels. It is getting exceptionally close to the next Fib level, which represents a major zone of resistance.

slopechart IYR

Schlumberger (SLB, stop loss 53.60) has already broken beneath a long-term supporting trendline, and it is also cleanly beneath an exceptionally well-formed topping pattern, highlighted here with a pink semi-circle.

slopechart SLB

United Airlines (UAL, stop loss 41.38) has also broken its long-term ascending trendline, which suggests sustainable weakness beneath it.

slopechart UAL

United Parcel Services (UPS, stop loss 156.66) has an enormous and well-formed topping pattern. Prices have violated this pattern to some degree, but we can allow some leniency because the selling pressure of the overhead supply is higher at these levels.

slopechart UPS

Lastly, the Dow Utility sector (XLU, stop loss 65.08) has a trio of advantages for bearish investors:

  1. The price is beneath an exceptionally well-formed diamond reversal pattern;
  2. The stock has been engaging in a steady series of "lower highs" for many months, and that pattern thus far remains unbroken;
  3. The sinewave, lightly drawn here, conforms to regularly-spaced bouts of strength and weakness, and it seems that this point in time is very near the apex of the sinewave's current cycle.

slopechart XLU

Tim Knight, a charting analyst with 35 years of trading experience, hosts Trading Charts, a tastylive segment airing Monday-Friday. He founded slopeofhope.com in 2005 and uses it as the basis of his technical charting and analysis. Knight authors The Technician column for Luckbox magazine. 

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