It was a bloodbath in global markets in early trading on Monday, continuing the weakness from last week and pushing U.S. equity futures’ to limit-down territory just before the opening of cash trading for the first time ever.
The blue chips of the Dow Jones Industrial Average fell more than 1,000 points at the open while the Nasdaq dropped 9% as popular momentum stocks like Facebook (FB) rolled over. The CBOE Volatility Index (VIX), Wall Street’s fear gauge, hit levels not seen since December 2008.
The situation remains dynamic with stocks rallying as I write this thanks to a rebound in Apple (AAPL) — which is up 2.5% after being down 13% at its lows thanks to an e-mail from CEO Tim Cook to CNBC’s Jim Cramer talking up its China business (in a possible violation of Fair Disclosure laws).
The immediate cause of Monday’s wipeout was a lack of action over the weekend by the People’s Bank of China to unveil fresh monetary policy easing in the form of an interest rate cut and/or a reserve ratio reduction. With the threat of a September rate hike from the Federal Reserve still on the table, traders stampeded for the exits.
These fears are deep rooted and reflect a possible loss of confidence in the primary motivator of this bull market: the efficacy of cheap-money stimulus.
Traders should consider preparing for further market losses by selling or at least taking short-term bearish positions in these five blue chips. With Monday’s volatility eclipsing the dramatics of the May 2010 “flash crash,” it’s worth remembering that stocks were weak for months afterward.
Blue Chips to Sell: Intel (INTC)
Shares of Intel (INTC) have been on the slide since December as tablet and PC sales slow.
The stock tested down below its 200-week moving average for the first time since late 2012, setting the stage for a possible break of this blue chip’s post-2009 uptrend.
Blue Chips to Sell: Microsoft (MSFT)
The free rollout of Windows 10 hasn’t given Microsoft (MSFT) shares the boost the bulls believed, pushing shares down on Monday morning to test its 2015 lows.
A breakdown here would put the post-2012 uptrend at risk and result in a possible test of the 200-week moving average for the first time since late 2011.
Blue Chips to Sell: General Electric (GE)
Shares of General Electric (GE) tested below their 200-week moving average for the first time since 2011 before returning to levels last seen in February. A breakdown looks likely here as GE hasn’t suffered a significant downtrend in four years.
Edge Pro subscribers recently closed an August put option position against the company for a 243% gain.
Blue Chips to Sell: PepsiCo (PEP)
PepsiCo (PEP), like many of the others listed here, tested below its 200-week moving average for the first time since 2011 on Monday before rebounding.
Even after rebounding, shares are threatening to break down out of their sideways consolidation range going back to November.
Blue Chips to Sell: McDonald’s (MCD)
Troubled with same-store sales disappointments and a lack of innovation (cheese sticks and guacamole burgers, really?), McDonald’s (MCD) shares dropped to test their January lows on Monday and remain below their 200-day moving average.
A retest of the lows look likely as management struggles for direction.