The past few weeks have seen tech stocks fall by the wayside. Traders have left the sector searching for bigger gains in SPACs, financials, energy and small-caps. It’s a rotation born of rampant speculation that is arguably getting a touch out of hand. But good luck timing when the party ends. There are numerous takeaways to the growing performance disparity, but there’s one that’s most relevant to today’s gallery. Tech stocks are underperforming, and many should be avoided altogether.
Many have fallen from their highs. Some are even in downtrends. Given the technical deterioration and bounty of beautiful opportunities elsewhere, I think the entire sector is worth avoiding. At a minimum, a select few companies are fragile and should be avoided until we see at least some semblance of strength return.
With that said, here are three stocks that are under pressure:
Let’s take a closer look at their charts.
3 Sinking Tech Stocks to Avoid: Salesforce.com (CRM)
Ever since Salesforce.com exploded higher following its late-August earnings announcement, sellers have been in complete control. Its drawdown has now eclipsed -24%.
The daily trend is stuck beneath a falling 50-day and 20-day moving average. We’ve seen multiple rally attempts along the way, but each was ultimately rejected.
We could see buyers gain some traction at the rising 200-day moving average, which is fast approaching, but I want to see a more substantial trend reversal before bottom fishing. For now, avoid the stock. If you think the bearishness continues, here’s a trade to capitalize.
The Trade: Buy the Mar $210/$200 bear put for $3.90.
Facebook (FB)
In fairness to Facebook’s inclusion today, mega-cap tech stocks lost their mojo a couple of months ago. However, while the likes of Apple, Amazon, and Nvidia are at least treading water, FB stock has been rolling over. Ironically, its price is ramping on Friday while the rest of the market is sliding. I’m not buying the rare sign of strength, however.
The overall downtrend doesn’t allow it. Four of the past five down days also saw heavy volume suggesting distribution by institutions. That’s a worrisome trend that needs reversed before bull trades are worth consideration. The stock’s increased volatility and imminent earning report are pumping up options premiums.
If you’re willing to lean bearish into the event, then bear calls are worth a shot.
The Trade: Sell the Feb $280/$285 bear call for $1.00 credit.
Twitter (TWTR)
Twitter’s flight path has been similar to Facebook’s so far this year, making it the final pick for our tech stocks to avoid. We just breached the 50-day moving average, officially upending the daily uptrend. Bulls will point toward the longer-term uptrend as a reason for optimism, but the reality is there are so many better-looking trends in the market.
Analyzing TWTR stock relative to the dozens of tickers currently leading the market higher leaves much to be desired. The next support zone for TWTR is nestled near $40. That spot marks the low of its last correction as well as the 200-day moving average.
Here’s a trade that will profit if bears press their newfound advantage.
The Trade: Buy the March $45/$40 put vertical spread for $2.00
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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