Stocks dropped on Friday as China’s GDP slowed considerably and here in the U.S. the Leading Indicators fell for a second straight month. The bad economic news set the tone for the market early on and then the losses grew toward midday before rallying in the afternoon.
The Dow took the biggest hit with a loss of 0.95% as Johnson & Johnson and Boeing weighed on the index. The Nasdaq dropped 0.83% as the second worst performer. The S&P and Russell managed to keep their losses more respectable at 0.39% and 0.41%, respectively.
[hana-code-insert name=’adsense-article’ /]Seven of the 10 sectors moved lower on Friday with the communication services sector taking the biggest loss at 1.16%.The tech sector fell 0.95% as cloud software companies were hit hard for the second time in the past week.
The utilities sector gained 0.33% and that was good enough for the best performance.
It was followed by the financial sector which gained 0.25% and they were joined in the black by the consumer staples sector with a move of 0.20%.
My scans turned in yet another negative result on Friday and they turned decidedly more bearish.
There were 87 names on the bearish list and only 11 on the bullish side.
Once these numbers were added in to the equation, the barometer dropped from -11.7 to -38.4.
After looking at the charts for all 98 stocks and ETFs on the two lists, it was the first one I looked at on the bearish list that got my attention the most. The iShares MSCI ACWI ETF (Nasdaq: ACWI) is an ETF that represents global stocks. ACWI stands for All Country World Index and the fund holds such stocks as Apple, Microsoft, Amazon, Nestle, and Facebook.
We see on the daily chart how the fund has been unable to move through the $75 area in the last four months. It has made several runs at the round-number resistance, but hasn’t been able to push through. With the negative economic numbers coming out around the globe, the ETF could be vulnerable. We also see that the daily stochastics readings are in overbought territory and made a bearish crossover on Friday.
Buy to open the December 75-strike puts on ACWI at $2.05 or better. These options expire on December 20. In order for these options to double the fund will need to drop to $$70.90. That level is slightly below the low in early October, but I wouldn’t be surprised to see it break through that low. I suggest a target gain of 100% with a stop at $75.35.
— Rick Pendergraft
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