As much as I’d like to pitch three bullish ideas, Monday’s market meltdown doesn’t allow it. My watch list is a sea of red, and the usual suspects are tumbling. Reopening plays, small caps, once-loved-now-loathed growth stocks — down, all down. I’ve scanned the top losers on the session and found plenty of fodder for short ideas. So, that’s where we’re focusing in this week’s top stock trades.
I focus on two primary patterns when searching for short plays: bear retracements and bear breakouts. The first one consists of a downtrend that has rallied multiple days into overhead resistance. It offers a low-risk entry to jump on the downtrend. The latter setup is a stock that’s either topping out or already trending lower and is breaking below a critical support zone.
In both cases, the forecast is for more pain in the stock. That said, here are three tempting stock trades for bears this week.
As always, I’ll offer a quick take on the chart followed by an intelligent options spread strategy.
Top Stock Trades: Global Jets ETF (JETS)
Airlines lie at the center of the reopening trade. And that makes them particularly sensitive to Covid-19 news. The recent omicron variant wreaked havoc on the Global Jets ETF, sending shares down 23% in a single month. Prices breached major support zones along the way and signaled increasing momentum for the downtrend. The rebound that followed failed to break back above the 20-day moving average, creating an important lower pivot high.
With prices losing almost 4% Monday, the next down leg has begun, and I suspect we’ll revisit the prior support of $19.35. I like buying puts for a quick bearish play, given the stock’s low price.
The Trade: Buy the Jan $20 put for $1.
We’ve come a long way from the euphoria and optimism that surrounded retail stocks in the first quarter. Many once-loved retailers are getting destroyed after reporting disappointing earnings. Omicron headlines certainly aren’t helping either. Nordstrom shares fell over 40% over the last month. Last week’s bounce attempt failed miserably, and prices cracked another support level this morning.
JWN stock closed the day down 6%, and there isn’t much resistance until around $17. While you could buy puts outright, I’m going with a put spread to cut the cost and improve the probability of profit.
The Trade: Buy the Jan $20/$17.50 put spread for $1.20. You’re risking $1.20 to make $1.30 if JWN sits below $17.50 at expiration.
Top Stock Trades: Tesla (TSLA)
Tesla rounds out this week’s top stock trades with a nasty support break. $1,000 held firm as an essential floor for the past two months. But no longer! Buyers were unable to stage a miraculous recovery by day’s end, making this the first close below $1,000 since October. We’re also breaching the 50-day moving average, so today’s sell-off is doubly impactful.
The sharp rally earlier in the year didn’t leave much by way of support, so TSLA’s next stop is likely $900. Today’s 5% loss shows just how quickly we could get there too. Given TSLA stock’s rich price tag, spread trades are a must here.
The Trade: Buy the Jan $950/$900 put spread for $21. You’re risking $21 for the potential to make $29 if TSLA declines to $900.
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.
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