U.S. equities are being hit with their worst selloff in months on Friday as long-term government bonds around the world are being hit hard. The catalyst?
Indications that the Bank of Japan, worries about the negative impact of ultra-low long-term yields on pension liabilities and bank earnings, could conduct a “reverse Operation Twist” to sell long-term bonds and buy short-term bonds.
The problem is that with long-term interest rates already so low, and because of the inherent durational leverage that results, this will create big-time losses for long-term bonds. Already, Japanese 40-year bonds have suffered a near 20% decline in price in recent weeks.
This volatility ends a long three-month quiet period in the market. And it is putting a number of blue-chip stocks in the Dow Jones Industrial Average at risk of further losses.
Here are five to watch for possible short-side/put option plays:
Dow Jones Titans at Risk: Apple (AAPL)
Apple Inc. (NASDAQ:AAPL) share have fallen back to test their 50-day moving average after the eagerly awaited iPhone 7 unveiling this week received a tepid reception. It was an incremental update, keeping the iPhone 6 form factor, adding some speed and a slightly better camera, but ditching the headphone jack.
The hype for new wireless earbuds (at $159) attracted derision on the internet over the cost, sound quality, and just how easy it will be to lose them. It didn’t help that AAPL announced on Thursday it wouldn’t report first weekend sales of the iPhone 7, either.
The company will next report results on Oct. 25 after the bell. Analysts are looking for earnings of $1.64 per share on revenues of $46.7 billion.
Dow Jones Titans at Risk: Pfizer (PFE)
Pfizer Inc. (NYSE:PFE) shares have broken down and out of a tight two-month trading range and are now falling further below their 50-day moving average.
PFE and biotech/pharma stocks in general have been under pressure amid fresh political blowback on higher drug prices, led by the recent fiasco surrounding Mylan NV (NASDAQ:MYL) and its EpiPen scandal.
The company will next report results on Oct. 25 before the bell. Analysts are looking for earnings of 62 cents per share on revenues of $13.1 billion.
Dow Jones Titans at Risk: Home Depot (HD)
Home Depot Inc (NYSE:HD) shares have fallen to test support at their 200-day moving average, down more than 5% from their recent high, despite solid home sales data and in-line quarterly results reported on Aug. 16. Analysts at RBC Capital Markets and Wedbush also recently raised their guidance as well. So why the selling?
Possible concern about the health of the U.S. consumer amid still-slow wage growth, a weak August jobs report and general malaise in retail stocks in recent weeks.
The company will next report results on Nov 15 before the bell. Analysts are looking for earnings of $1.58 per share on revenues of $23.1 billion.
Dow Jones Titans at Risk: Coca Cola (KO)
The Coca-Cola Co (NYSE:KO) shares have dropped down and out of their three-month trading range and have returned to levels not seen since early March.
Shares have been under pressure since July after reporting in-line revenue and issuing downside guidance for the fiscal year, lowing its top-line estimate.
The company will next report results on Oct. 19 before the bell. Analysts are looking for earnings of 48 cents per share on revenues of $10.4 billion.
Dow Jones Titans at Risk: General Electric (GE)
General Electric Company (NYSE:GE) shares have broken dramatically down and out of an ultra-tight three-month trading range, returning to levels last seen since late June. Support near the 200-day moving average was last tested in June and again in February.
The August-October selloff last year was more serious, pushing shares all the way down to the 200-week moving average — which would be worth a 16%-plus drop from here.
The company will next report results on Oct. 21 before the bell. Analysts are looking for earnings of 33 cents per share on revenues of $30.1 billion. Edge Pro subscribers are enjoying an 11% gain in their Sept $31 GE options straddle position, which was a bet on a volatility breakout.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
