Shorting Casinos With My Homies

From the desk of Tom Bruni @BruniCharting

Throughout the week we've been raising some caution flags about the short-term direction of Equities (here, here, and here).

Now that we're seeing some downside follow-through for the first time since December, I wanted to outline a few more potential short setups on an absolute and relative basis.

First let's start with why I'm looking at these sub-sectors to begin with.

The S&P Midcap 400 Consumer Discretionary is one of the cleanest charts I see out there on an absolute basis, with well-defined risk and reward/risk clearly skewed in favor of the bulls. Since there's no ETF to trade this, I had to look through some of the individual components to see how we can best express this thesis in the market.

Click on chart to enlarge view.

That brought me to the Casinos & Gaming sub-sector ETF that's failing to reclaim support near 38.30 as the 200-day moving average catches down to price and momentum diverges negatively. As long as prices are below that level, the risk is to the downside toward its 2018 lows.

In terms of the US Construction ETF, what really intrigued me is its chart relative to the Consumer Discretionary sector as a whole. Prices recently retested their 2016 lows and a downward-sloping 200-day moving average, unsuccessfully, and are now rolling over again.

This suggests continued under-performance from this sub-sector and a great pairs trade as long as prices are below their year-to-date highs.

If you'd prefer not to trade the sub-sectors as a group, I've outlined three stocks from each sub-sector below where the reward/risk is skewed in our favor and our risk is well-defined on the short side.