Much to the bears’ frustration, the stock market bulls came out on top in 2013 as clouds of uncertainty blanketed the world of commodities. Persistent fears over slowing growth in China continue to put a damper on demand for natural resources; however, the industrial metals finally appear to be reversing course after a string of encouraging regional manufacturing reports.
Amid the ongoing bull market at home, many remain hesitant to jump in long, given the magnitude of the current run-up ahead of the potential budget drama that could arise and spark a correction well ahead of the February 7 debt-ceiling deadline. As such, below, two commodity stocks are highlighted that may offer an attractive short selling opportunity for those looking to bet against some of the stellar run-ups already seen across Wall Street.
The stocks included here are deemed to be great trading candidates for three reasons. First and foremost, each of these companies boasts a market cap upwards of $1 billion, along with average daily trading volumes topping the $1 million mark, in an effort to weed out smaller, more volatile, trading prospects.
Second, these securities are trading below their 200-day moving averages, thereby implying that they are in longer-term downtrends.
Lastly, these stocks are also trading above their five-day moving averages, which makes them attractive for swing traders looking to sell short before they resume their downtrend. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Kinder Morgan Inc. (NYSE:KMI)
Consider Kinder Morgan’s one-year daily performance chart below.
Click to enlarge
This stock has staged a furious rebound over the last few weeks, helping to erase a large portion of the losses accumulated in the final trading month of 2013. Despite this rally, however, Kinder Morgan remains stuck in a worrisome downtrend; notice how this stock has managed to post lower highs (blue line) and lower lows (red line) since peaking at $41.49 per share on May 21, 2013. Furthermore, this stock has previously failed at surpassing resistance between $36-$37 per share, as seen from September through the end of November last year. Given the longer-term downtrend at hand, my company advises entering into a short position whenever Kinder Morgan shows signs of struggling to hold above $36 per share.
LinnCo LLC (NASDAQ:LNCO)
Consider LinnCo’s one-year daily performance chart below.
Click to enlarge
This stock is nearing a major resistance level (red line), which it has previously failed to summit on several occasions since sinking to $23 per share in early July last year. Notice how LinnCo has previously failed to settle above $32 per share, after which it has proceeded to correct lower and then trade sideways in every instance. With LinnCo nearing this same resistance level again, my company advises active traders to take a short position as the stock shows signs of struggling to hold its ground above $32 per share.
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Editor's note: This article by Stoyan Bojinov was originally published on Commodity HQ.
No positions in stocks mentioned.