Stocks rolled over on Monday like a sack of potatoes falling out of the back of a truck. It wasn’t graceful, and it wasn’t pretty. And it ended with a modest rebound that is just the thing to make optimists think that everything is going to be all right.
It’s still possible that everything will be all right — but it’s important to realize that the 1.5% smackdown in the Dow Jones Industrials Average (or 2.4% in the Russell 2000) did not come out of the blue. The market has been losing sponsorship for quite some time at an accelerating rate.
In a way, the loss represents the unwinding of positions that were bought by funds for “window dressing” at the end of last year and could not be sold due to tax considerations. Once the calendar page flipped, people who had made a lot of money driving up the value of Netflix, Inc. (NFLX) and Alphabet Inc (GOOG) last year were able to finally sell positions and take profits. They may very well end up buying their positions right back…but for now, at least, the money went into some corners of the market that were a lot cheaper, such as energy producers and gold miners.
However, the main, surface-level reason for the sell-off was a large decline in Chinese equities. It is the Year of the Monkey over there, so no wonder there was a chimp-ish quality to the news. Manufacturing reports in China came in well below expectations early Monday, showing the fifth consecutive month of contraction, but rose from the prior month, and some sub-indices showed sequential improvement. New circuit breakers designed to limit intraday declines were triggered on their first day of use. Investors were believed to be trimming positions ahead of the expiration of a ban on selling by significant stakeholders.
Turning back to the United States, today I’m recommending the kind of stock that must work for the bulls to stay on track: General Electric Company (GE).
GE plunged from $40 to $5 from 2000 to 2009 and has been recovering since. I think it will now get through its 2007 high, a milestone that most of its industrial peers passed long ago.
GE sank 1.4% today but finished near its high. It still looks great. Buy GE at $31.15 limit, good till canceled. Set up to sell half at initial target $33.50 limit, good till canceled, and hold the rest for further profits. Set a stop at $29.30, good after 10:30 a.m. ET.
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.
