- Salesforce (CRM) — Shares slipped below the 200-weekly moving average and have a long way to go until the next support zone.
- Alcoa (AA) — Has been hammered after reporting earnings numbers that failed to justify its meteoric rise.
- Nvidia (NVDA) — The unwind in semiconductors accelerated Thursday, causing NVDA to crack a major floor.
Jerome Powell is talking tough against inflation, and it’s weighing on asset values. After Thursday’s swoon, I’m finding more stocks to sell than buy. Today I’m featuring three especially vulnerable stocks to sell. Yesterday the Federal Reserve chairman pointed to a 50-basis point rate hike in the May meeting, with much more to come. A bear raid swiftly ensued on Wall Street as investors took the comments to indicate that the upside for equities may be capped for a spell until inflation gets under control.
Regardless of the narrative, the price action in today’s deteriorating picks demands playing defense by selling shares or building bearish trades to capitalize on the further downside. Given the indiscriminate selling, I created a diversified list of choices to increase the odds of success. That said, if the market meltdown persists, I’m not sure the diversification will matter all that much. Correlations run hot in times like these, so I suspect they’ll all move together.
That’s the pitch; here are the picks:
You know just how hated high beta growth stocks have become in recent months if you’ve been paying attention. Unfortunately for Salesforce (NYSE:CRM), it falls under that umbrella. At Thursday’s close, CRM stock had dropped 43% from last November’s $311.75 share price.
For two months, the stock held above its February support zone at $185, giving hope to bottom fishers and underwater longs that relief could be in store. But the market backdrop denied it. Prices fell back to the floor just in time for yesterday’s market selloff to pull CRM below the floor. At the same time, we cracked the 200-weekly moving average, reversing a significant long-term support area.
Bulls have lost control of the stock across all time frames.
The Trade: Buy the JUN $170/$150 put spread for $5.70.
You’re risking $5.70 to make $14.30 if CRM falls to $150 over the next two months.
Alcoa (NYSE:AA) shares have been riding high on the inflation wave as investors have pushed into commodity-related businesses. AA stock has tripled just since last July. The third and fourth quarter earnings reports supported the climb, but buyers finally got out over their skis. Yesterday’s earnings response saw the aluminum giant break its 50-day moving average for the first time this year. By day’s end, prices had crashed 17%, and I suspect the hangover effects will linger.
On the price chart front, the 200-day moving average near $60 beckons as the next downside target. Here’s a spread that will more than double your dough if we reach it.
The Trade: Buy the JUN $65/$60 put spread for $1.85.
The max loss is $1.85, and the max gain is $3.15.
Nvidia (NASDAQ:NVDA) rounds out today’s trio of stocks to sell with a nasty support break. Semiconductors have been under pressure alongside the Nasdaq and other growth stocks for the past six months. This week proved no different. For all of 2022, $210 has been a vital support zone. Six separate selloffs proved unable to crack it. The number of successful tests has cemented its significance in the minds of chart watchers.
But then, it broke.
Yesterday’s selling barraged proved too powerful, and NVDA finally closed below $210. Not surprisingly, volume ballooned to provide credibility to the breakdown. NVDA stock now has a mountain of overhead supply, making it difficult for future recovery attempts.
Here’s a strategy that will profit if we get downside follow-through.
The Trade: Buy the JUN $200/$180 put spread for $7.50.
You’re risking $7.50 to make $12.50.
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.