Tech stocks are stumbling this morning amid fears over the rapid rise in bond yields. This is a movie we’ve seen before. In February, a similar surge in interest rates led to a sharp correction in the Nasdaq. That episode delivered a 12% haircut before buyers returned. An echo to the previous experience would pull the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) down to its 200-day moving average near $339.
Of course, the past isn’t always prologue, and this go-around could play out differently. But there’s no denying that rising rates sours sentiment in the land of tech. Narrative aside, the price action is sending warning signs. We’re below the 50-day moving average and formed a lower pivot high to turn the daily trend lower officially.
I scanned the most liquid tech stocks for trend reversals to either sell or build bearish trades on. Here are three of the most vulnerable:
After breaking down each price chart, I’ll share my favorite options strategy for those willing to go bearish.
Stalling Tech Stocks: Akamai (AKAM)
Akamai’s downtrend started after its early August earnings release disappointed investors. Since then, every rally has resulted in a lower pivot high, and the 20-day moving average has proven stiff resistance. Monday’s session formed a bearish harami candle and prices are plunging in early trading Tuesday.
Worse yet, we’ve already taken out the old support zone at $106, and there aren’t any obvious floors to stop its descent until around $100. That leaves room for more pain if sellers press their bets here.
With fear on the rise, implied volatility is jumping, and puts are becoming expensive. So rather than pay out the nose for a put option, let’s build a spread trade to mitigate our volatility exposure.
The Trade: Buy the November $105/$100 put vertical for $1.70.
Your max loss is $1.70, and the max gain is $3.30.
The sterling fundamentals of Apple make it a tough stock to short. Nevertheless, the chart has spoken, and it’s a bearish message. In addition, the tech king wasn’t immune to February’s downturn, so there’s obviously precedence for sellers having some success when the tech sector falls out of favor.
Last Monday’s stock plunge on the heels of the China Evergrande scare created a lower pivot low in Apple’s price trend. And, with this week’s failed bounce attempt, we now have a lower pivot high beneath both a falling 20-day and 50-day moving average.
In sum, bears have wrested control of the daily trend.
The rising 200-day moving average near $135 is the next major target. Here’s a spread that offers big rewards if we can get there.
The Trade: Buy the November $140/$135 bear put spread for $1.60.
You’re risking $1.60 for the chance to make $3.40.
Stalling Tech Stocks: Microsoft (MSFT)
The final of today’s tech stocks to sell is Microsoft. It’s the biggest loser of the three in today’s session, falling 3.15% at the time of this writing. The drop is large enough to push MSFT stock below the 50-day moving average and multiple horizontal support zones. Volume swelled during the last downswing, and it’s increased Monday and today as well. The uptick in participation qualifies as distribution and suggests institutions are ringing the register.
If it breaks the $285 support level, then a push to $275 becomes likely. I again like bear puts as a smart directional play if you’re willing to bet we see further downside in the days ahead.
The Trade: Buy the November $280/$275 put vertical for $1.65.
The risk is $1.65, and the potential reward is $3.35.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
For a free trial to the best trading community on the planet and Tyler’s current home, click here!