- Block (SQ) is breaching the 50-day moving average, invalidating its recent trend reversal.
- Disney (DIS) is suffering a significant support break today.
- The Ark Innovation Fund (ARKK) remains under pressure as investors abandon unprofitable growth stocks.
Thursday’s market dive ended a volatile week for stocks that had buyers on the ropes. And despite a holiday-lengthened weekend to recharge, investors returned to Wall Street as skittish as they left. In early trading on Monday, we’re saw recent trends in sector performance persist. Commodities and energy remain strong. Growth-related areas like tech and biotech remain weak. I found far more bearish ideas than bullish ones, so that’s where this week’s top stock trades will focus.
The headwinds for equities haven’t changed. The Russia-Ukraine war continues unabated. Inflationary pressures remain red hot. And the Federal Reserve is ramping up the rhetoric on just how far they’re willing to go with monetary policy to bring price stability back.
While a better-than-expected earnings season could bring bulls back, it’s a mere wish until we see more substantial evidence. If you want to bet with short sellers, here are three smart choices.
|DIS||Walt Disney Co.||128.01|
|ARKK||Ark Innovation Fund||57.75|
Top Stock Trades: Block (SQ)
The recent roller-coaster ride in Block stock proves just how challenging the market backdrop has been. It staged an epic trend reversal last month to kick-start what could have been a sustained price recovery. The turnabout was even aided by a robust earnings report and substantial upside appreciation. The magnitude and duration of the rise were also sufficient to turn the 50-day moving average higher.
But if today is any indication, it was all for naught. SQ stock is slipping below a horizontal support level and the 50-day moving average. If this drop sticks, it will invalidate the recent trend reversal, and signal bears have wrested back control. The next support zone isn’t until $95, leaving plenty of room for prices to slip further.
The next earnings release isn’t until May 5, which leaves three weeks for sellers to press their bets.
The Trade: Buy the May $110/$95 put spread for $4.50.
You’re risking $4.50 to make $5.50 if prices sit below $95 at expiration. If you capture a modest profit ahead of earnings, consider exiting before the event.
Walt Disney (DIS)
Disney stock is tumbling to a new low for the year, bringing the 2022 losses so far to -18%. From their peak, prices have now sunk 37%. The significance of the $130 zone that just broke can’t be overstated. It halted the previous two downturns but couldn’t stem the tide this go around. We based sideways for seven sessions before today’s decline, suggesting this is the beginning of a new downswing.
Consider using $120 as the next target. There aren’t any prior pivots until then, giving sellers a clean runway. Quarterly earnings arrive in mid-May and could provide a lifeline to beleaguered shareholders. Until then, the price action points lower. Long puts or put spreads offer a high reward potential.
The Trade: Buy the May $125 put for $4.35.
Top Stock Trades: Ark Innovation Fund (ARKK)
The final candidate for this week’s top stock trades offers a diversified way to play what has arguably been the hardest hit area of the market: growth stocks. The Ark Innovation Fund was famous for its enormous gains following the pandemic. Unfortunately, the pendulum has swung massively in the other direction. What was loved is now loathed, and investors are utterly destroying growth stocks.
May hosted an epic oversold bounce that had promise. But it wasn’t meant to be. ARKK is aggressively rolling over. Monday’s 4% slide is pulling shares below support and suggests that a return to the $51.85 low is likely. Bear put spreads are my weapon of choice.
The Trade: Buy the May $55/$50 bear put spread for $1.70.
The max loss is $1.70, and the max gain is $3.30.