Coronavirus fears are fading, and stocks have officially returned to record highs. The Nasdaq Composite led the recovery, but the S&P 500 has now joined its tech-heavy brother by eclipsing January’s peak. But bears still hold the upper hand in certain companies. These laggards are locked in downtrends, which makes them all attractive stocks to sell into the strength.
Two of the weakest spots right now are metals and energy. I use the SPDR S&P Metals and Mining (NYSEARCA:XME), and the Energy Select Sector SPDR (NYSEARCA:XLE) to track both areas. Unlike, say, the industrial sector, which only fell a couple percent from its peak during the recent market misstep, XME and XLE were demolished.
The former fell 16.7% from its December high, and the latter dropped 15.8%. Support levels were smashed and now loom large as potential resistance zones. And that has me eyeing which stocks in each fund are worth shorting.
Here are three of the most vulnerable.
Stocks to Sell: Alcoa (AA)
Source: The thinkorswim® platform from TD Ameritrade
To say Alcoa (NYSE:AA) has been decimated would be an understatement. AA stock has fallen 89% from its highs, and with the latest downturn now sits below its 2009 low. It’s as if the 11-year bull market in stocks never happened. In 2016 Alcoa shares saw a one-for-three reverse split, which boosted its share price. Unfortunately, the fundamentals have deteriorated, plunging AA back into the abyss.
We’re now going on four consecutive earnings announcements with negative earnings per share. The distribution following January’s report was relentless, with Alcoa stock falling 11 days in a row. An oversold bounce finally emerged, and AA has rallied for three days straight and is gapping higher this morning.
This creates a lower-risk entry for bears looking to game the downtrend.