Two Stocks and One FX Pair To Short Now
In this week's weekly video report, I’ll look at the three instruments that look most likely to crash going into next week.
The first one is ZM (Zoom Communications):
There are multiple bear price patterns here that make it apparent this stock has nowhere to go but lower.
About a year ago, ZM traced out a well-formed head and shoulders. This is the governing pattern that has dictated price action going forward.
ZM’s price history now includes a double top too -- when price crashes through the neckline of that pattern (just a hair under ZM’s current level) that will confirm the double top price pattern and strongly imply lower future prices.
ZM has also traced out an ascending, broadening price pattern:
This pattern begins life narrow and then widens at the top. ZM is about to crack the lower edge of this pattern and if this happens, the downside target is the beginning of the structure. That suggests ZM is likely to go back to the $275 - $280 price level.
That could happen as early as next week.
Next on the hit parade of probable bearish price movements is EURJPY (the Euro versus the Japanese yen).
EURJPY recently bumped up against a major resistance level that featured a double top from about a year ago.
The pair hit 134 and now looks to have been rejected at that level. It’s formed what appears to be a head and shoulders. EURJPY has to cross through the neckline at 128 to confirm this pattern and then much lower prices should ensure.
Meanwhile there’s been a couple other things going on that suggest EURJPY is rolling over: it’s broken its recent uptrend line and it’s been trading below that line for the last several weeks.
What I particularly like about EURJPY right now is the near-term catalyst that makes it possible to bet on a decline with a small amount of risk: last week was an inside bar.
That means last week’s high and low was completely contained within the trading range of the week before. Such a bar represents a coiling (or storage) of energy.
Where the energy is going to be released is largely determined by the previous price action, which in EURJPY’s case is pretty much all bearish. I feel the energy will be released to the downside.
And now we don't have to take too big a risk to find out, thanks to the inside bar. Put your stop loss a hair above 130 (the inside bar’s high) and your sell stop around 129 (the inside bar’s low).
Your profit target should be about three times your stop loss, making this a great risk/reward opportunity. These kinds of trades are what make you good profits over time. They’re excellent bets even if individual trades sometimes lose.
Now here’s BYND (Beyond Meat Inc.):
I have been historically very bearish on BYND. I think it's setting up for a major fall now by virtue of a multitude of bear price patterns.
There’s a well-formed head and shoulders acting as the governing pattern here, and then a double top acting as the head of a more recent -- and larger -- head and shoulders too.
What I'm really focusing on is the neckline around $113. The market has stopped short of or bounced off that level many, many times. I think the next time BYND descends to hit $113, it could go right through.
That could trigger a massive collapse -- as much as 50% or lower in this stock. That’s due to the huge governing price patterns in place here.
What’s more, last week the stock traced out a key reversal: the market made a new high but by the end of the week it closed on the low. This reversal is pointing in the direction the market is likely to take.
BYND’s trajectory is inevitably much lower.
Now I'm going to finish off by taking a quick look at XAUUSD (spot gold):
I’ve been watching spot gold trade within the same formation I just pointed out with ZM: an ascending broadening price pattern.
Last week gold prices crashed to the lower end of that pattern, then traced out what looks like a fantastic key reversal. That suggests prices should go higher.
However, I’m having a little trouble picturing how prices are going to rise through all the historical resistance here.
In fact, the resistance looks so strong that I feel a bull trap will be sprung at some point. A bull trap means that anybody chasing the upside of gold is likely to be disappointed. They’ll buy into the short-term rise and then get caught when it reverses at resistance.
To encourage the bullish side, there’s a double bottom and then last week’s key reversal at the same level.
However, there’s also a bearish trendline in place with all kinds of resistance at $1,850, $1,875 and $1,900. Gold has a lot of work to do to get through these levels.
That’s why I’m on the sidelines for now. I don’t see a sustainable bull run being possible yet. The recent key reversal could be just a dead cat bounce. In fact, I’m more likely to sell gold on bearish price action than buy it at this time.
And that’s it for this week!
I’m bearish on ZM, EURJPY and BYND. And I’m neutral to bearish on gold.
I wish you a very healthy and prosperous trading week.
Mark "SecondaryStockCrash" Shawzin