While the Nasdaq and S&P 500 have been rising strongly for more than four months, cracks are starting to appear in some of the tech assets. Take Palo Alto Networks (PANW) for example. It saw a huge surge of 60% from November 2023 to February 2024, riding the wave of AI and the tech bubble. However, despite beating earnings and revenue expectations last month, the stock plunged a staggering 30% in a single day after it revised down its forecast for 2024. As often happens with such moves, stocks they typically retrace part of the decline before resuming their course. original trajectory. This is exactly what is happening with PANW. What the Charts Say In the chart provided, I have used Fibonacci retracements to illustrate this phenomenon. These retracements are a crucial component of the Elliott Wave Theory, with the 61.8% and 38% levels being particularly significant. It is worth noting that PANW initially recovered some of the losses, but is facing strong resistance at the 61.8% level, which led to rejection. Based on this analysis, my outlook is bearish for PANW, anticipating further declines from here on out. With this vision in mind, I am looking to place a small bet against the tech sector using PANW as my primary trading vehicle. The Trade Setup: PANW 305-300 Bear Put Spread The trade structure I am using here is called the “bear put spread” also known as the “put debit spread”. To build my bear put spread, I need to buy a $305 put and sell a $300 put as a single unit. Most trading platforms will offer a bear put spread (or long put spread) as a trade type and will automatically construct the trade for you. All you need to do is make sure you choose the right strikes and expiration dates. Here is my exact trade setup: Bought $305 put, expiring March 22 Sold $300 put, expiring March 22 Cost: $250 I used $305-$300 as the strike since PANW was trading at $301 at the time of the writing this article, but the strike selection will depend on where PANW is trading at the time this trade is made. For example. If PANW trades at $298, I would open a $300 to $295 put spread instead. If PANW trades at or below my short strike on the expiration date, this trade will double my money and return an ROI of 100% on the money invested. As soon as I complete this trade, I can place a GTC close order (good until cancelled) for $4.85 on this trade. This way, the trade will close itself when it reaches its full profit target. I like to close profitable deals with a 94% ROI. This helps to avoid waiting until the last days of the expiration week, thus reducing gamma risk. If the trade goes against me, I would like to exit the trade if I lose 50% of my initial investment (i.e. 1.25). By simply doing this, each winner will undo two losing trades. -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO PURCHASE SECURITIES OR OTHER FINANCIAL ASSETS. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT THE UNIQUE PERSONAL CIRCUMSTANCES OF ANY INDIVIDUAL. THE ABOVE CONTENT MAY NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISION, YOU SHOULD CONSIDER SEEKING ADVICE FROM YOUR FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.