Two Sectors to Short in This Bounce

The stock market fired a warning shot earlier this month.

 

After setting a new all-time high above 1,894, the S&P 500 dropped 80 points – roughly 4.2% – in just two weeks. This fast downside action is just a small sample of what may happen when the stock market finally enters a correction phase.

 

But we're not there yet. As I said last week, the old bull market still has one more kick left in it. And the recent bounce is giving traders a chance to cash out on some long positions and make a short trade or two.

 

You see, the bounce is ending. As I told you on Tuesday, we're coming up on a seasonally weak period for stock prices. And there are two sectors in particular that look vulnerable for a decline...

 

Let's start with real estate. Here's a chart of the iShares U.S. Real Estate Fund (IYR)...

 

 

For the past six months, IYR has been trading in a bearish rising-wedge formation. In this pattern, a stock makes consistently higher highs and higher lows but the distance between each new high and low is smaller. Eventually, the stock has to break out of the pattern one way or another. When that happens, it usually results in a big move.  (more)

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