- Advanced Micro Devices (AMD) is crashing through support on Monday.
- Adobe (ADBE) got rejected at the declining 50-day moving average and is vulnerable to further downside.
- Nike (NKE) is on its way to retesting last month’s low.
Tech stocks are crumbling to kick off the new week. The rollover is unfortunate given the progress made by the sector last month. The Nasdaq 100 tells the tale, with Monday’s 2% decline pulling prices below the 50-day moving average. If you’re a bear seeking tempting targets, this is the place to look. This week’s top stock trades provide three tickers that are sinking.
Two of them are brand-name technology companies struggling to find buyers in the new rising-rate world. Sky-high inflation is driving the cost of capital rapidly higher and has investors fleeing growth stocks. Given the backdrop, traders have two choices. Short tech or go long the sectors that are seeing inflows.
Given the lousy start to the week, I’m inclined to focus on the short side for our top stock trades. To provide a bit of diversification, I did add a struggling retailer to the mix that offers a clean bearish pattern.
|AMD||Advanced Micro Devices||98.17|
Top Stock Trades: Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) provides a case study for the significance of the century mark. $100 was significant resistance in 2020. Then, a monster breakout ensued when we finally broke above it in 2021. Since then, we’ve returned to test it as a new support zone about a dozen times. The bulls aggressively defended it every time – until today.
Sellers are swarming semiconductor stocks, and AMD finally breached $100. At the low point, shares were down nearly 5%. There’s always a chance this is a fake-out, but we’d need to push back above $100 to invalidate the breakdown. Barring that or better-than-expected earnings later this month, prices will head lower.
AMD options premiums are elevated, so spread trades are a must. I like selling out-of-the-money call spreads to boost the odds.
The Trade: Sell the May $115/$120 bear call spread for 70 cents.
Consider this a bet that AMD will be below $115 at expiration. If it is, you’ll pocket the 70 cent premium.
Adobe was carving out quite the clean bottoming pattern over the past month. A higher pivot low followed up its double bottom. Tack on the cluster of highs at the 50-day moving average, and we had a potential upside breakout in the making.
Unfortunately, the last week of selling spoiled the pattern. And with Monday’s breach of the 20-day moving average and a general falling out of favor in growth stocks, more downside could be in the offing.
The March low of $408 is a realistic target if bears press their advantage. Adobe just reported earnings, so we can swing away without fear of another quarterly report throwing a wrench into the chart pattern.
Long put vertical spreads offer a cheap and limited risk way to play.
The Trade: Buy the May $430/$410 put spread for $6.80.
The max loss is $6.80, and the max gain is $13.20.
Top Stock Trades: Nike (NKE)
Nike rounds out this week’s top stock trades with a new support break. Last Wednesday, NKE stock slipped back below the 20-day moving average and ended the week with a three-bar base. Support at $227 needed to hold to prevent a more significant breakdown, and, well, it didn’t. This morning prices were falling another 2%, and there aren’t any other support zones until $117, which leaves ample opportunity to grab more gains on the short side.
I’ll echo the Adobe trade structure with another put vertical spread. We’re offsetting the cost of an at-the-money put purchase by selling an out-of-the-money put against it.
The Trade: Buy the May $125/$115 put spread for $2.85.
You’re risking $2.85 to make $7.15 if NKE falls to $115 by expiration.