The toll of poor earnings results and terrible economic reports hit the market on Wednesday and the result was all four main indices losing ground. The Russell took the biggest hit with a drop of 4.31%.
The other three indices saw more modest losses, but still pretty sharp declines. The S&P fell 2.2% and that was the second worst performance. The Dow dropped 1.86% and the Nasdaq lost 1.44%.
All of the main sectors fell on Wednesday with varying degrees of losses.The smallest loss was 0.51% and that was from the healthcare sector.
The communication services sector fell 0.94% and it was the only other sector that didn’t lose at least 1.0%.
The energy sector took the biggest hit with a drop of 4.70% and it was followed by the materials sector with a decline of 4.59%.
The financial sector fell 4.33% and those were the only three sectors that dropped over 4.0%.
My scans continued their run of tremendously negative readings with 215 bearish signals and one bullish signal.
Once these results were added in to the equation I got a reading of -177.9 on the barometer and that is the biggest negative reading I have ever gotten. I started running the barometer at the beginning of 2009.
One of the many stocks and ETFs on the bearish list yesterday was the iShares MSCI Eurozone ETF (NYSE: EZU). Because it is an ETF we don’t have fundamental ratings like we would with an individual stock, but I did get a bearish signal from Tickeron, the Artificial Intelligence platform I use. Past bearish signals like the current one have been successful 84% of the time.
There were many stocks and ETFs with similar setups to the EZU, but the one thing that stood out is that the EZU filled a gap with the gain on Tuesday. The high was $32.49 and the pre-gap low on March 26 was $32.46. Many times we see stocks and ETFs drop again after they fill such a gap. The fund was overbought based on the daily stochastic readings and the indicators made a bearish crossover yesterday.
Buy to open the May 33-strike puts on EZU at $2.85 or better. These options expire on May 15. With the option premiums and volatility high, I suggest a target gain of 75%. This means the fund will need to drop to $28 for our target to get hit. I suggest a stop at $32.70.
— Rick Pendergraft
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