Stocks had a rough second half of the day on Tuesday. After opening slightly higher, all four of the main indices turned lower late in the day and finished sharply lower at the end of the day.
The Russell took the worst hit with a loss of 3.46%. The Nasdaq and the S&P experienced similar losses of 2.06% and 2.05%, respectively. The Dow fell 1.89% and that was the smallest loss of the bunch.
All 10 of the main sectors dropped on the day with four dropping over 2.0%.The industrial sector was the worst performer with a loss of 2.81%.
The financial sector declined 2.61% as the second worst performer.
The top performers managed to keep their losses under 1.0%, but there were only two of those.
The consumer staples sector lost 0.84% and that was the smallest loss. The utilities sector declined 0.88% as the other one.
My scans turned decidedly bearish with the big drops in the indices. There were 107 bearish signals and five bullish signals.
The barometer dropped sharply and moved from positive territory to negative territory in the process. The final reading last night was -24.8 after a reading of 28.9 on Monday.
With so many stocks and ETFs to choose from on the bearish list, it was easy to find a number of bearish scenarios that I liked. As for the setup I liked the best, it was on the iShares MSCI Mexico Capped ETF (NYSE: EWW). As is always the case with ETFs, we don’t get the fundamental indicators that we do with stocks. The fund did get a bearish signal from Tickeron on Tuesday and 89% of past signals have been successful.
We see on the daily chart that the fund has struggled to bounce back as much as other equity ETFs. It finally hit its 50-day moving average on Friday and did close slightly above the trend line. Unfortunately the fund fell each of the last two days and dropped back below the 50-day as a result. I look for the fund to drop in the coming weeks.
Buy to open the June week four 31-strike puts on EWW at $2.52 or better. These options expire on June 26. I suggest a target gain of 75% and that means the fund will need to reach $26.60. The fund bottomed around this same area in April, but was considerably lower at the low in March. I suggest a stop at $31.00.
— Rick Pendergraft
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