Blue chips in the S&P 500 and the Dow Jones Industrial Average, along with much of the rest of the market, were careening lower Friday in the first serious selloff since January in response to a stronger-than-expected February jobs report. This is causing consternation among the bulls since it greatly increases the odds that the Federal Reserve removes the “patient” language from its March 18 policy statement and raises interest rates for the first time since 2006 in June.
Given how stupidly dependent the market has become on the Fed’s cheap money, this type of response is to be expected; especially since merely the end of the QE1 and QE2 bond buying programs in 2010 and 2011 resulted in large selloffs. QE3 ended late last year, and we’ve yet to see a market drop.
Now, the end of the bond buying will be mixed with an outright increase in the cost of money as the Fed prepares to start its first tightening cycle since 2004. The perennial optimists are feel waves of nausea today.
As a result, a number of popular blue chips are tipping over into new downtrends — setting the stage for profitable put option (or short side) plays. Here are five worth a look.
Blue Chips Teetering Over the Brink: Amazon.com, Inc. (AMZN)
Amazon.com, Inc. (NASDAQ:AMZN) surged out of its January low on better-than-expected earnings, but now looks ready for a bit of profit taking as the three-month uptrend support line near $380 — which lines up with its 20-day moving average — is about to be taken out. Barron’s recently outlined a cautious view on the stock, which isn’t helping sentiment.
On March 4, I recommended Edge Prosubscribers buy the March $385 puts — a position that is still good to go for new money.
Blue Chips Teetering on the Brink: Intel Corporation (INTC)
Chipmakers were one of the leading areas throughout February and are now vulnerable to some profit taking. The first nice reversal since December is in play, setting up a breakdown by Intel Corporation (NASDAQ:INTC) below its 200-day moving average — a level INTC has been leaning on since late January.
On Friday, I recommended the INTC $33 puts to my Edge Pro subscribers — a position that should move higher in a hurry once the three-month support level is taken out.
Blue Chips Teetering on the Brink: Goldman Sachs Group Inc (GS)
Goldman Sachs Group Inc (NYSE:GS) stock is rolling down out of a pattern of lower highs starting in December as the capital market banks look vulnerable to the start of the Fed’s rate-tightening cycle. Not only could this put a lid on recent stock market gains, but it could slow the flow of IPOs and new debt issuances as well. The 10-year Treasury yield is popping higher, as bond prices weaken, which also could threaten the flow of corporate bond issuances.
I’m looking for a move to support near $180, and have recommended the GS March $190 puts to my Edge Pro subscribers in response. The position is already up nearly 32% since March 4.
Blue Chips Teetering on the Brink: Chevron Corporation
Friday’s strong jobs report is sending energy and energy stocks lower as the U.S. dollar strengthens. Crude oil now looks ready to fall out of the sideways channel it had enjoyed over the last two months. As a result, energy plays are breaking to the downside with Chevron Corporation (NYSE:CVX) looking ready to test its December/January lows.
In response, I recommended the March $105 CVX puts to my Edge Pro subscribers on Feb. 20, a position that is carrying a gain of more than 72%.
Blue Chips Teetering on the Brink: General Electric Company (GE)
As one of the truest indications of overall market trend, General Electric Company (NYSE:GE) stalled out in late 2013 and has been sliding sideways ever since. I’m looking for a quick decline to the October/January low near $23.60 — an 8% or so decline from here.
I have recommended the March $26 GE puts to my Edge Pro subscribers. That position is already up more than 10% but still looks good for new money.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
