Here’s a very simple shorting opportunity in a name that we all know well. This is a bear market, I’ve been very clear about that for months. The majority of stocks have already fallen more than 10-15% from their recent highs, and in some cases a lot more. But there are a few names that have held in there despite the major U.S. Stock Market indexes falling completely apart.
Today I want to focus on Dr Pepper Snapple $DPS, a stock that is putting in bearish momentum divergences on both weekly and daily timeframes. To me, this is a great recipe for a nice correction. If the risk vs reward is in favor of the bears, I’m all over it. In this case, I think it is.
Here is a look at the weekly timeframe for $DPS where momentum put in a much lower high while prices made new all-time highs in the 4th quarter. This is warning number one, which comes from a more structural perspective:
Now that we know that we could have a problem here structurally, we want to look at a daily timeframe for execution and risk management purposes. Look at this chart below. To me, this screams failed breakout, bearish momentum divergence, and a very clean risk vs reward opportunity on the short side:
We broke out in December above the October highs, hung out there for a bit, and then failed to start 2016. This $91 is the line in the sand. As long as price is below $91 we want to be very aggressively short with a target under $80. Anything above $91 and there is no reason to be short. That skews the risk vs reward very much in favor of the bears.
I like it short.