The market tumbled today after investors learned that the Wuhan coronavirus is still very much a problem. Over 2,900 are infected with the virus worldwide, while 82 have died within Chinese borders.
The city of Wuhan, from where the coronavirus originated, is under complete quarantine.
But that hasn’t prevented it from spreading. Predictive models show that (at most) 100,000 could be infected but are yet to show any symptoms. If the predictions are accurate, Wuhan will dwarf SARS, of which there were only 8,000 carriers in 2003.
The major indexes opened today’s trading session at major losses and have mostly stayed in the same spot by the close. Only a small handful of homebuilder stocks (which belong to one of the hottest sectors in 2020) saw daily gains. Even gold-related stocks traded “flat” amid the surge of volatility and uncertainty.
And though bulls will undoubtedly have another discount buying opportunity when the Wuhan coronavirus has been dealt with, for now, it might be a good idea for traders to examine stocks that are falling.
Especially ones that just failed to mount a comeback, like E-Trade Financial Corp (NASDAQ: ETFC), which could be just a week away from another collapse.
In the weekly candlestick chart above, you can see that ETFC has been locked into a consistent downtrend since mid-2018. The stock has been struggling for more than a year to turn things around, and now that it’s set another lower low, shares could sink further.
There wasn’t contact with the upper Bollinger Band (BB) – something we’d typically like to see preceding a short trade – but ETFC did break out below its minor bullish trend (represented with the yellow trendline). The stochastics indicator suggests that the stock is not yet oversold, either, meaning ETFC has more room to descend.
Should ETFC drop below the current week’s low by a significant amount, it might make sense to go short with a trade trigger of $43.54 (or at a price 0.50% below the current week’s low when the weekly candlestick closes on Friday).
Last week, E-Trade released somewhat disappointing earnings. Despite beating revenue estimates, the company’s EPS (earnings per share) fell well below expectations (76 cents reported vs. 81 expected).
Based on ETFC’s recent price action, plus a freshly-posted bad earnings report, the stock seems ready to drop…
Even without the help of the Wuhan coronavirus, which looks to only make things worse in the coming weeks.
