There's been hearing increasing chatter lately that, if you're shorting stocks now, you're late to the game. That does hold true in some cases. For instance, I'm not interested in shorting Apple (AAPL) now after a 25% decline. However, plenty of compelling short setups remain that could offer more downside in coming weeks.
Sure, the market is oversold and will probably bounce at some point between now and the end of the year, but the move most likely won't amount to much more than a short-term tradable rally. A lot of technical damage has been done that will take more time to repair. The three-year-plus bull market is long in the tooth, and new leadership needs more time to come into focus.
In an environment like this, it makes sense to continue looking for profit opportunities on the downside.
When building a list of short ideas, you should focus on growth stocks that have already made huge price runs. There are plenty to choose from, among them Priceline.com (PCLN), Ulta Beauty (ULTA), Lululemon Athletica (LULU) and Under Armour (UA).
Of these, the one that looks most vulnerable is Priceline. The stock has risen more than 1,200% since October 2008 -- and, more recently, the stock has seen a series of lower highs and a dry-up in buying demand. These point toward a stock that could be ready to pay a visit to its last breakout area around $553.
Shares of Priceline gapped up Nov. 2 on strong earnings, but the enthusiasm was short-lived as sellers came into the stock. After early strength, it finished near its session low in heavy volume. Sellers have been in Priceline ever since, and it is starting to meet with resistance at its 40-week moving average. This looks like a ceiling for now. I'm not seeing unequivocal signs of institutional selling in Priceline yet, but it looks like a tired stock.
It's been said in the past that fundamentals often look the best at or near a top. From this perspective, Priceline's earnings prospects still look pretty good, but sales growth has been decelerating in recent quarters and continued weakness in Europe in 2013 could weigh on results going forward. Clearly the company is looking for new growth opportunities, as evidenced by its recent deal to buy Kayak (KYAK). Part of Priceline's recent weakness is due to concerns about slowing growth in coming quarters. These concerns are legitimate ones.
A quick market rally could see the stock rise to its 40-week moving average around $648, but I suspect this level will ultimately be a significant resistance area. All great price runs eventually come to an end, and this could be happening now with Priceline.
When a new market uptrend begins in earnest, former leaders like these will likely be left behind, replaced by a new crop of leaders still in the early stages of growth.
Ken Shreve got his start in the financial markets with Investor's Business Daily (IBD). He spent over 10 years as an editor and columnist for IBD and its website Investors.com. He also acted as the Investors.com "Market Wrap" anchor and presented IBD investing workshops and seminars nationwide. He continues to provide market commentary on national radio and has appeared on CNBC. He now writes Ultimate Growth Stocks, a weekly newsletter at TFNN and hosts Breakout Investing, Monday through Friday from 3 to 4 p.m. PST. Learn more at www.kenshreve.com.