Earnings season is inbound, and investors are about to see how inflationary pressures and a downshift in economic activity have affected corporate profits. The recent surge in the U.S. dollar to a twenty-year high is also bound to play a negative role. To get ahead of what could cause bears to return with a vengeance, below are three large-cap stocks to sell before it’s too late.
And it’s not just the deteriorating fundamentals that are cause for caution. The price action of these industry giants is ugly, even as many stocks are finally showing bottoming patterns. Downtrends have taken root across all time frames, and rallies continue to fail at overhead resistance levels. Until the tone changes, the path of resistance is lower.
Let’s take a closer look and map out to capitalize on further pain.
You’d be hard-pressed to find an industry chart that looks uglier than semiconductors. Even with the recent rebound in growth stocks, semis haven’t been able to pull out of their downtrend. Nvidia (NASDAQ:NVDA) has set the bearish tone as the largest player in the space. Its trend sunk to a new 52-week low last week at $140.55, and though a four-day rally arrived, it only got as high as its declining 20-day moving average. This area halted the last advance and is a common gathering ground for sellers.
Bulls will say that with NVDA stock already down nearly 50%, a recession and other headwinds buffeting the stock are priced in. But you could have speculated the same thing when Nvidia was down 30% and 40%. Yet it went lower. The same risk remains. Until the trend changes, this is a stock to sell into strength.
To capitalize on the next descent, consider buying put spreads.
The Trade: Buy the Aug $150/$140 bear put spread for $3.75.
You’re risking $3.75 to make $6.25 if NVDA sits below $140 at expiration.
Adobe (NASDAQ:ADBE) shares have been laid low this year, and despite a respectable bounce off the lows, prices are struggling with stiff resistance at $400. In midday trading Tuesday, ADBE is forming a nasty reversal candle that signals the beginning of its next down-leg.
The declining 50-day moving average allows for tight stop placement, and if prices retest last month’s lows ($338), then there’s a lot of potential reward for new short trades. We’ve seen nothing but underwhelming numbers and down gaps over the past three reports on the earnings front. The consistent disappointment backs up the bear case.
Throw it all together, and Adobe is one of the more obvious large-cap stocks to sell now. Here’s an option spread to profit from its pain.
The Trade: Buy the Aug $360/$340 put spread for $5.
You’re risking $5 to make $15 if prices sink below $340 by expiration.
Deere (NYSE:DE) rounds out today’s large-cap stocks to sell with a freshly completed topping pattern that was one year in the making. The length of the top and significance of the $320 broken support zone mean future rallies will be highly suspect. At the same time, DE stock rallied so far during the recovery that it created very few support levels.
Many stocks have roundtripped the post-pandemic recovery, returning to the breakout areas from late 2020. But Deere isn’t even close. That leaves ample room for prices to unwind if participants feel a similar reset is warranted. The May earnings report sent prices plunging, and we’ve seen weak action every since. If that weren’t enough, DE stock has underperformed the S&P 500 during the past month’s bounce, making it an easy target for bears seeking relative weakness.
Consider selling Deere shares and only revisiting it if the technicals turn higher. You can also deploy put spreads to exploit the downtrend.
The Trade: Buy the Aug $290/$270 put spread for $6.
The risk is $6, and the reward is $14 if DE sits below $270 at expiration.
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.