The European Central Bank, as expected, delivered more monetary policy stimulus overnight including an interest rate cut and an expansion of its existing bond buying program. ECB chief Mario Draghi even left the door open to a possible “helicopter drop” of money that has been a popular last-ditch-idea with economists.
But it seems like it wasn’t enough. The S&P 500 and other major indices wilted badly on Thursday after opening higher.
The result is a massive “hammer” technical formation on the major averages; a pattern that often marks important medium-term tops. With this — and the market’s likelihood of dropping into the Federal Reserve’s policy meeting on March 15-16 to pressure officials into a “no hike” decision — in mind, I have recommended subscribers sell their long positions and start considering new short-side plays.
Edge subscribers enjoyed a solid trading sequence over the past month, with nearly a 24% gain in their SPDR S&P Metals and Mining (ETF) (XME) position and ongoing gains in precious metals stocks.
But now is the time to get flat, raise cash and wait for new opportunities if not actively bet on lower prices in the ways to come.
Here are seven ways to play the market turn.
American Express Company (AXP)
Shares of American Express Company (AXP) have been in decline since late 2014 on a combination of factors, including the loss of the contract with Costco Wholesale Corporation (COST) and weak earnings guidance.
A low volume, oversold bounce ensued over the last two months to take COST stock back to its 50-day moving average. However, the uptrend looks temporary as a test of the recent lows seems likely.
In response, I have recommended the AXP April $57.50 puts to Edge Pro subscribers.
General Electric Company (GE)
General Electric Company (GE) shares have perked back to test their late December high near $31. But with global economic growth remaining a big question mark, and large caps rolling over, GE makes an ideal short-side play for a likely return to its 200-day moving average.
In response, I have recommended the GE April $30 puts to Edge Pro subscribers.
Boeing Co (BA)
Boeing Co (BA) shares suffered a nasty slide in January and February driven by fears, later confirmed, of weaker-than-expected earnings of $1.60 per share in Q4 vs. the $1.64 analysts were expecting. An oversold rebound returned the stock to its 50-day moving average and its early November high.
Without a significant pullback in more than a month, some profit taking is likely here.
Boeing will next release earnings on April 20 before the bell. Analysts are looking for earnings of $1.86 per share on revenues of $21.89 billion.
E I Du Pont De Nemours And Co (DD)
Shares of E I Du Pont De Nemours And Co (DD) — more commonly DuPont — have been getting a lift on reports that BASF (BASFY) might make a takeover bid for the company, lifting shares back toward its late December high near $67.50.
Sellers are coming back in, however, threatening an end to the three-month uptrend amid ongoing top-line pressures for commodity producers.
DuPont will next report earnings on April 26 before the bell. Analysts are expecting earnings of $1.04 a share on revenues of $7.1 billion.
Walt Disney Co (DIS)
After a near-perfect, unbroken rise out of the 2011 market selloff, Walt Disney Co (DIS) shares hit a wall last summer near $120 — and again in November — on concerns about cord-cutting threatening its television businesses. Also, after all the hype about the new Star Wars movie, results were largely as expected.
Similar to the test of the rise out of the August low in September, I’m looking for a drop to the $92.50 area or below to try the bulls’ resolve.
Disney is expected to report its next quarterly results on May 3 before the bell. Analysts are looking for earnings of $1.41 per share on revenues of $13.2 billion.
iPath S&P 500 VIX Short Term Futures TM ETN (VXX)
The CBOE Volatility Index, known as Wall Street’s “fear gauge,” has seen a big pullback over the last two months as confidence returned. But the iPath S&P 500 VIX Short Term Futures TM ETN (VXX), which tracks the VIX, looks ready to pop here after bouncing on its 200-day moving average.
Why? Because the concerns that drove the selloff back in January and February were never really solved: The chronic energy market oversupply situation, the Fed’s threat of higher interest rates and the nagging feeling that extreme monetary policy stimulus in Japan and Europe isn’t working anymore.
Watch for the VXX to run back toward the high $20s.
ProShares UltraShort Crude Oil (SCO)
Speaking of energy prices, the ProShares UltraShort Bloomberg Crude Oil (SCO) — a 2x inverse leveraged play on crude oil — looks set for a reversal after dropping to its deepest oversold level since last spring. The problem is that crude oil inventories are rapidly approaching tank tops as the long rumored OPEC-Russia supply freeze deal hasn’t materialized.
Indeed, reports are out today that a possible production freeze meeting is unlikely to take place on March 20 because Iran has not yet committed.
The chatter is that OPEC’s gulf members would prefer a meeting in the first half of April and that any agreement with Iran would require a “freeze” at their pre-sanctions production level of 4 million barrels per day rather than their January production level of just over 2.9 million barrels.
So expect oil prices to stay low or drop, and buy SCO to capitalize.