If stocks start slumbering into a summer lull soon, it is likely that near-term extended sectors such as Consumer Discretionary stocks fall the hardest on a relative basis. Financials and Energy may fall less as discussed here.
As such, we scoured the Consumer Discretionary stocks and found that Panera Bread (PNRA) and Starbucks (SBUX) could be good starts to the short side. Fundamentally we like both companies and could see higher levels still in the current cyclical bull market. Technically however both of them look near-term 'toppy.'
After gapping higher on February 11th following an earnings release, PNRA started developing a so far three month-long topping pattern. While part of the technical attraction lies in the still large looming unfilled gap below (blue zone), the risk reward is also nice. A move much above $128 would prove us wrong, while on the downside initial targets around $112.50 and ultimate targets as low as $100 seem juicy.
Both stocks still need to prove to us some more weakness before we would trigger a trade to the short side, but knowing ahead of time what stocks we will short if and when a summer correction appears will help us trade without emotions.
Happy Trading
Serge Berger
www.TheSteadyTrader.com
