Investors and traders didn’t react well to the Fed’s surprise Sunday afternoon rate cut. The cut was meant to calm investors and instead had the opposite effect—it caused more concern. All four of the main indices took huge hits as a result, suffering worse losses than we saw last Thursday.
The Russell tumbled the most on Monday with a drop of 13.53%. The Dow fell 12.93% and the Nasdaq dropped 12.32%. The S&P declined 11.98% and that was the smallest decline of the four.
Eight of the 10 main sectors experienced losses greater than 10%.The only two sectors that didn’t reach double-digit percentage losses were consumer staples (-6.78%) and healthcare (-9.82%).
The worst loss came from the financial sector which tumbled 13.75%.
The tech sector was right on its heels with a drop of 13.74% and the energy sector made it three sectors with losses over 13% with a loss of 13.54%.
My scans saw a drop off in the number of bullish signals after the big selloff on Monday.
There were 58 names on the bullish list and one on the bearish list.
The barometer dropped from 141 to 114.9 once these results were added in to the equation.
I was finally able to find a stock on the bullish list that I liked the setup on. Anglogold Ashanti (NYSE: AU) appeared on the bullish list and the company scores a 78 on the EPS rating system and a B on the SMR grading scale. Gold stocks should be attracting investors right now and in the hysteria from last week a number of them got sold off just like everything else.
The daily chart shows that AU formed a bullish engulfing pattern yesterday and that is a good sign for the stock. When the stock opens below the low of the previous day and then rallies sharply throughout the day to close above the high from the previous day, it tends to mark a reversal in the trend. We also see that the daily stochastic readings are in oversold territory and made a bullish crossover last night.
Buy to open the July 15-strike calls on AU at $4.80 or better. These options expire on July 17. Because of the volatility we are seeing right now, I am going to suggest a target gain of 50% for this trade. That means the options will need to reach $7.20 and that will put the stock at $22.20. I also suggest a stop at $14.50.
— Rick Pendergraft
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