Stocks sank broadly on Monday, while bonds were a little higher and crude oil was down for a fourth straight session, this time by 2.4%.
The biggest news event of the day came from China, where the Shanghai Composite slumped 8.5%, its biggest one-day decline in eight years. The bulk of the collapse came late in the session, and that volatility bled into global markets.
There was nothing specific behind the move, although concerns that the government may dial back support of the market were cited, as well as speculation of renewed margin restrictions at brokerages. European markets followed lower on the negative sentiment from Asia, with China-exposed companies leading underperformers. Mostly positive economic data out of the eurozone provided some intraday support, but was overshadowed by China.
Health care was one of the few bright spots in the day, with Teva Pharmaceutical Industries Ltd (ADR) (TEVA) making a $40.5 billion bid for the generics business at Allergan PLC (AGN). The deal was seen as allowing Allergan to trim debt levels from the recent merger with Actavis, and to pursue its stated intent to accelerate efforts in the branded business. TEVA, meanwhile, strengthens its hold on the generics market with a more friendly target than former merger target Mylan NV (MYL).
As for U.S. economic data, the June durable orders report was the main event. Transportation equipment order increases and non-military aircraft orders (up 66.1%) drove the positive vibes.
The S&P 500 is only down about 3% from its 52-week high of 2,134.72 back on May 20, as well as its July 20 high, but it sure looks a lot worse when you look at individual stocks. The average stock is down much more sharply from its own one-year highs.
Today I’m recommending a trade in a specific area of the market that’s particularly oversold — and should rebound.
Gold miners have been annihilated in the past seven months, and have become extremely oversold. My system suggests that, at the very least, the recent bounce should hold and provide a base for moving up from there, as gold and the gold miners’ stocks appear to be bottoming.
Let’s play this idea with Market Vectors Gold Miners ETF (GDX) options.
Buy the GDX Sept. 18th $13 calls (GDX150918C00013000) at $1.75 limit, good till canceled. If not filled by 10 a.m. ET, lift the bid to $2.00. Then set an initial target for the calls at $2.45; set up to sell half if it gets there, and hold the rest for further profits. Also set a stop at 95 cents limit, good after 11 a.m. ET only.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation, and be sure to check out his Top Stock for 2015 here.
