It’s getting nasty out there. Stocks are tumbling, and shareholders are battening down the hatches just in case this is the start of a bigger correction. However, the damage is not being equally felt. Growth stocks are bearing the brunt of the damage.
Even Apple (NASDAQ:AAPL) has been bumpy.
Explanations for why traders are ringing the register abound. Some say it’s due to comments from Treasury Secretary Janet Yellen that interest rates may need to rise to keep inflation pressures in check.
Others contend it’s a mere shuffling of the deck as traders shift capital from technology and growth stocks into cyclical and value stocks.
Regardless of your reason of choice, there’s no denying that bears are gaining ground in growth stocks. I’ve scanned the biggest losers from Tuesday’s slide and discovered three tickers that look particularly vulnerable to more downside.
Take a look.
If you think tech stocks remain on the outs, then here are the trades worth placing.
3 Growth Stocks that are Falling Out of Bed: Zoom Video Communications (ZM)
Zoom Video Communications peaked last October and has been plumbing the depths ever since. Its latest hiccup came on the back of an underwhelming earnings report.
Sellers swarmed following the event and prices have struggled to get off the mat. Taken together, the last two months have built a sideways base below the falling 50-day moving average.
Tuesday’s drubbing is pushing ZM stock below major support near $310, potentially signaling its next down leg has begun. It will open today around $306. This is as good a trigger as any for new bear trades.
The Trade: Buy the June $300/$280 bear put vertical for $8.80.
Consider this a bet that ZM pushes its way down to $280 and below. You’re risking $8.80 to capture $11.20.
Pinterest shares have turned extremely volatile in 2021, with dizzying price action between $60 and $90.
Over the past three months, a huge double top or “M” pattern has developed with multiple signs of distribution during the back half of the formation. Worse yet, an underwhelming earnings report hit last week that accelerated the growth stock’s decline.
We just breached the key support zone at $63, which halted previous declines. It’s a bearish signal that confirms and completes the topping formation.
Bulls will point out the fact that we’re now testing the 200-day moving average. I’ll agree this could be a spot for a bounce, but it’s a rally to be sold if it arrives.
If you’re willing to wager PINS continues to trend lower, then consider the following trade.
The Trade: Buy the June $60/$55 put vertical for $1.80.
You’re risking $1.80 to capture $3.20.
Spotify is the final growth stock finding itself in sellers’ crosshairs. SPOT stock is trending lower beneath all major moving averages. Since peaking in February, prices have fallen.
The current stage of the decline came following an unimpressive earnings report. I pegged $250 as a key short-term support zone. We broke below it on Tuesday, clearing the way for a drop to the next floor near $225.
The stock is down significantly over the past six trading sessions, but like PINS, I think any rebound that materializes here is a selling opportunity.
If you’re willing to bet the stock continues to wend its way lower, then buying put spreads is smart.
The Trade: Buy the July $240/$220 put spread for $8.60.
The max risk is $8.60, and the max reward is $11.40.
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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