The selloff that started on Tuesday carried over to Wednesday and the selling seemed to accelerate as Fed Chairman Powell was addressing Congress. The S&P managed to spend a few minutes in positive territory and so did the Nasdaq, but both of those periods were very brief.
The Russell took the worst hit for a second straight day as it fell 3.32%. The Dow dropped 2.17% and that was the second worst decline. The S&P ended up falling 1.75% while the Nasdaq dropped 1.55%.
All 10 sectors dropped for a second straight day and once again there were only two that managed to keep the losses under 1.0%.It was the same two as Tuesday—the utilities sector (-0.85%) and the consumer staples sector (-0.90%).
The energy sector was the worst performer on Wednesday with a decline of 4.54% and it was the only one that took a loss of more than 3.0%.
The second worst performer was the financial sector with a drop of 2.96%.
My scans weren’t as bad last night as they were the night before, but they were still skewed to the bearish side. There were 54 bearish signals and only two bullish signals.
The barometer fell from -24.8 to -45.6 as a result of the third straight night of bearish results.
Today’s trade idea is a second straight bearish one and the subject of the trade is the SPDR S&P Retail ETF (NYSE: XRT). It appeared on the bearish list of course and I found the timing to be very interesting. The retail sector will be in the spotlight next week as a number of large retailers are set to report earnings results. This does mean the trade is a little riskier than usual.
I spotted the potential resistance at the $38 level on the daily chart, but I felt like it was even clearer on the weekly chart. On the daily chart, the fund had seen its 10-day RSI reach overbought territory on Friday and the stochastic indicators reached overbought territory on Monday and have now made a bearish crossover.
Buy to open the June 39-strike puts on XRT at $3.90 or better. These options expire on June 19. I suggest a target gain of 75% and that means the fund will need to drop to $32.18. That is right in the same area where the fund opened when it gapped lower on March 12. I suggest a stop at $38.50.
— Rick Pendergraft
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