It was another wild week on Wall Street, and the coronavirus “black swan” continues to cause some truly historic moves in the stock and bond markets.
As of yesterday’s close, the S&P 500 is down 16.5% for the week. From the all-time high set just four weeks ago, the index is down nearly 27%. That’s a loss of over 900 points.
As of this writing S&P 500 futures are up by a little over 5%, but I’m not ready to say the market has found a bottom.
Because of the potential for more volatility, I am recommending a bearish trade on Spartan Motors Inc. (NASDAQ:SPAR), the custom, heavy-duty vehicle manufacturer.
SPAR’s Earnings Set it up for Profit Taking
SPAR reported its fourth quarter earnings after the close yesterday, and the company beat earnings expectations. It came in at $0.47 per share, while estimates placed it at $0.35 per share.
With over a 30% beat, investors looking for stocks to buy in today’s bullish bounce may look to SPAR.
But that brings me to the CBOE S&P 500 Volatility Index (VIX). I am using to a monthly chart that is zoomed out as far as possible to provide some perspective.
As you can see in the chart of the VIX below, it is trading like it’s 2008 all over again. Yesterday’s close at 75.47 was easily the highest reading since the 2008 crisis and well above any of the other spikes over the past decade.
Monthly Chart of S&P 500 Volatility Index (VIX) — Chart Source: TradingView
If investors do push into SPAR now that its earnings report is out, the stock could easily be one of the first to selloff in another drop. The stock would push higher, and investors, looking to take profits off the table, would lock in their short-term gains.
Support Doesn’t Mean Much
In a market as driven by headlines as this one, technical support levels aren’t as useful. SPAR has support at around $11, as you can see below, but if the market starts another round of selling after bad news or a lack of good news, it could easily break through that level.
Daily Chart of Spartan Motors, Inc. (SPAR) — Chart Source: TradingView
The S&P 500 broke through almost every short-term support level it had, and SPAR did that same, falling below $16.50 and $14.00.
I don’t think the market has reached a bottom, and you can add some protection to your portfolio with this bearish put on SPAR.
Buy to open the Spartan Motors, Inc. (SPAR) April 17th $10 Puts (SPAR200417P00010000) at $1.15 or lower.
InvestorPlace advisor Ken Trester also 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.
