Monday saw the selloff accelerate as the corona virus fears continued to cause panic with investors. Oil contributed to the panic as Saudi Arabia wouldn’t commit to a production cut and that caused oil to drop 25%. The entire treasury yield curve dropped below 1% with the 30-year falling to 0.94% and the 10-year dropped to 0.49%.
The main indices got crushed and suffered their worst percentage losses in years, they even triggered the circuit breakers in the first half-hour of trading. The Russell dropped 9.37%, the Dow dropped 7.79%, the S&P fell 7.6%, and the Nasdaq declined 7.29%.
All 10 sectors lost ground, but the energy sector really got crushed with a 20.14% loss.The financial sector fell 10.72% and it was the only other sector to reach double-digit percentage losses.
The consumer staples sector took the smallest loss but it still dropped 4.35%.
The second smallest loss was on the healthcare sector and it declined 5.2%.
My scans turned in their first negative result since February 25 with 16 names on the bearish list and 13 on the bullish list.
The barometer remained in positive territory, but just barely. The final reading on Monday was 2.2, down from 8.1 on Friday.
Even though there were a number of stocks on the two lists last night, I didn’t like the setups on any of them. Instead I turned to another list and from there I found a bearish trade idea for today. L Brands (NYSE: LB) has poor fundamentals with a 24 EPS rating and no SMR rating due to no return on equity. Sales have been slow for the company over the last few years and they were down in the most recently reported quarter.
The weekly chart shows how the stock peaked about four weeks ago as it hit its 104-week moving average. The stock has since turned lower and moved below its 13-week and 52-week moving averages. The 10-day is poised to cross bearishly below its 50-day in the next day or two and when that happened back in August the decline accelerated.
Buy to open the April 22.50-strike puts on LB at $3.40 or better. These options expire on April 17. In order for these options to double the stock will need to fall to $15.70. The lows in the fourth quarter were down below this level, so the stock won’t have to break to a new 52-week low to hit our target. I suggest a target gain of 100% with a stop at $22.60.
— Rick Pendergraft
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