Short Opportunities In A Sideways Market

The weight of the evidence remains mixed and suggests that there will be winners on the long side, winners on the short side, and a lot of stocks in the middle that aren't going anywhere.

An easy way to view that is through our five bull market barometers, which continue to suggest we're in a bear market. As a result, we're focused on the best opportunities on both the long and short side.

In this post, we're going to outline which area of the market we're looking to short and add several individual stock trade setups to our list of open ideas.

Let's start at the sector level. Nifty Commodities remain below the 38.2% Fibonacci Retracement of its 2020 decline at 2,635. With momentum in a bearish range and stuck below this level, then it makes sense to be erring on the short side and looking for a move back towards the lows near 2,075

Click on chart to enlarge view. 

The Nifty Metal Index is comprised of stocks in similar industries and has not retraced much of its decline. A retest of its 1,475 lows looks likely.

The Nifty Infrastructure has held up the best of the three sector/thematic ETFs we're looking at but still remains stuck below support at 2,825. As long as prices are below that level, then we'd rather be taking profits on longs and deploying new shorts.

The other reason these indices are in focus is because of how they're acting on a relative basis. Both the Nifty Commodities and Nifty Metal Indexes are stuck below long-term support levels, but have yet to accelerate to the downside. If prices cannot reclaim these levels then we'd much rather be erring on the short side of these sectors.

So we have our thesis of downside potential on both an absolute and relative basis in the Nifty Commodities, Metal, and Infrastructure indexes. Now, let's take a look at how we're expressing that view in the market.

Here's NMDC Ltd. breaking back below former support/resistance near 78 and starting to move lower again. With momentum in a bearish range and absolute and relative price action in a downtrend, we want to be short with a long-term target down near 35.

NMDC Ltd. and other names in the sectors listed above are being added to existing ideas we've talked about in the past like HDFC Bank Ltd., which are still stuck below former support and starting to roll over again.

The market remains a hot mess, but there are clear winners and losers at the sector and individual stock level.

The sectors and stocks listed above remain at risk of further downside, so we want to use the recent strength to either sell any long positions or initiate new shorts.