After falling nearly 7% from during the first week of August, the S&P 500 index rebounded about 4% to close back above the 2,900 level last Thursday.
However, as you can see in the chart below, the S&P has now tested its 50-day moving average (red line) from the underside. After failing to close above that key technical level, the index is turning lower again this morning.
As my regular readers know, moving averages can be long term or short term in nature. Traders typically look at 50-day and 200-day moving averages for clues about market direction, as they help to smooth out the day-to-day volatility in the market.
Daily Chart of the S&P 500 Index (SPX) — Chart Source: TradingView
While the 50-day moving average is pointing higher, it is currently acting as resistance and keeping a lid on the market’s rebound.
If this level continues to hold as support, I wouldn’t be surprised to see the S&P trade back down to its 200-day moving average (blue line) at 2,793.
If that occurs, we could certainly see some of the weaker stocks in the market sell off sharply.
This REIT is Ready to Roll Over
While real estate investment trusts (REITs) in general have actually been performing well lately — thanks to their solid dividend yields in the current low-interest-rate environment — one that has been lagging is Apple Hospitality REIT, Inc. (NYSE:APLE)
APLE is a REIT that owns a large and diverse portfolio of upscale hotels in the United States. Its portfolio holds 234 hotels with over 30,000 guest rooms in 34 states, including 108 Marriott-branded hotels, 125 Hilton-branded hotels and one Hyatt-branded hotel.
Daily Chart of Apple Hospitality REIT, Inc. (NYSE:APLE) — Chart Source: TradingView
As you can see in the chart above, APLE has tried to break above its 50-day and 200-day moving average several times this year. But each time it looks like it has cleared one of those levels, it has been sold off by the market.
Most recently, the stock fell below short-term support at about $15.50 and traded all the way down to the $14.60 level. It has since rebounded, but it is once again being rejected by its declining 50-day moving average.
For now, the path of least resistance for APLE is to the downside, and I’m expecting it to test its recent lows below $15 again.
With that in mind, I recommend you…
Buy to open the Apple Hospitality REIT, Inc. (APLE) Oct. 18th $15 Puts (APLE191018P00015000) at $0.35 or lower.
InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.