As impressive as last week’s 6.6% rally in the S&P 500 was, it didn’t change the structure of the entrenched downtrend. Instead, it was a garden-variety retracement returning prices directly into resistance.
Those who viewed the rebound with suspicion were vindicated on Tuesday when sellers returned en mass at the declining 20-day moving average. With a new lower pivot high in place, I found many stocks to sell before more losses ensue.
In scouting out the best tickers to bail on, I focused on those with relative weakness, a straightforward narrative, and an obvious entry point for new bear trades (or exit point for existing bull positions). If you own these stocks, consider the following reasons why you should abandon ship.
As always, I’ll share an options trade idea for each ticker, so you know how to profit from their pain.
| Ticker | Company | Price |
| NKE | Nike | $100.90 |
| SQ | Block | $59.93 |
| LOW | Lowe’s | $172.40 |
Stocks to Sell: Nike (NKE)
On Monday, Nike (NYSE:NKE) reported Q4 earnings numbers that investors weighed and found wanting. The displeasure was on full display Tuesday as sellers sent NKE stock down 8%.
Nike entered the report already down 60% from last year’s peak, so investors were hoping that much of the issues impacting the retail giant (inflation, supply chain, Chinese lockdowns, etc.) were already priced in.
They weren’t.
With the renewed selling, NKE stock fell to a 52-week low and is testing a critical short-term support zone. Meanwhile, prices were trending below all major moving averages on the weekly and daily time frames, making the technical picture equally dismal. Barring some magical rescue by the psychologically significant $100 level, Nike is headed lower.
The Trade: Buy the August $100/$95 bear put spread for $1.64.
Block (SQ)
Block (NYSE:SQ) has been one of the biggest losers among growth stocks that soared following the pandemic. From peak to trough, the fintech company has cratered 77%. But the hits keep coming, which suggests there’s still more downside for this S&P 500 stock.
What’s particularly alarming is its inability to find a bottom even as other growth areas have. While the Biotech ETF (NYSEARCA:XBI) and Ark Innovation Fund (NYSEARCA:ARKK), two popular proxies of the growth trade, bottomed in early May, Block has continued to decline and remains a stock to sell.
The recent rally into the declining 20-day moving average set up a classic bear retracement pattern that sellers were only too happy to pounce on. A return to the old low of $56 seems inevitable.
To capitalize, consider buying put spreads.
The Trade: Buy the August $60/$50 bear put for around $3.50.
Stocks to Sell: Lowe’s (LOW)
The final of today’s stocks to sell takes us to the housing industry with Lowe’s (NYSE:LOW). Soaring interest rates and recession fears have destroyed nearly everything. Home builders, home improvement – you name it. Mortgage rates doubling from below 3% to over 6% in such a short period has rapidly cooled the lot of them. And more losses could be in store.
LOW stock is 34% off its highs but remains vulnerable to more downside. Its daily and weekly price trends are both cruising lower, and the 200-week moving average beckons near $150. The latest rally was viciously rejected by resistance, and the next downswing has begun. It’s too early to call for a bottom, and there’s little evidence or appetite for it anyway.
With the Federal Reserve still early in its rate-hike cycle, I think bad news and price action will continue to attend Lowe’s. Once again, put spreads offer a cheap path to big profits.
The Trade: Buy the August $170/$155 put spread for $4.80.
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.
