All three major indexes – the Dow, S&P, and Nasdaq Composite – are down over 20% from their 52-week highs.
Sorry, bulls – the bear market is here.
Dreaming about a whipsaw recovery? So too were value-seeking traders last week, right before their long positions got thrown into the abyss.
Now it’s about how far stocks will fall and when the bleeding will end.
For perma-bears, the crash certainly seems “heaven-sent.” They’ve been waiting on a collapse for years now.
The coronavirus has finally given it to them.
Even after the Fed announced an unprecedented repo relief plan today (in which the central bank would provide much-needed liquidity), equities remained down. Investors now have less reason to rush to cash, but it wasn’t enough to bring stocks back.
The “bottom” might not be in sight, either. If the coronavirus outbreak spreads further in the United States, the market could be in for another 10% plunge (or more).
And like I mentioned yesterday, we haven’t had a 40% drop since 2008. Stocks are long overdue in that regard.
Will the market keep falling? Based on the recent price action of the major indexes, there’s no reason to believe the rout will stop any time soon. At the very least, stocks don’t look ready to recover quite yet. If they were “chopping sideways,” it’d be a different story.
For the moment, though, there’s just too much negative momentum pushing share prices lower.
To long-term “buy and holders,” that’s scary stuff. To short-term traders, it’s another opportunity to go short on stocks that haven’t fallen like the rest.
Take Eli Lilly & Company (NYSE: LLY), a leading pharmaceutical firm, for example.
Yesterday, an Indianapolis Eli Lilly employee tested positive for COVID-19. That’s obviously very troubling news for the drug manufacturer.
LLY shares were down majorly today as a result, ending the stock’s fight to stay above water during the market-wide sell-off.
Now, LLY has broken out below its minor bullish trend (represented with the yellow trendline). It’s riding the lower Bollinger Band (BB), which is definitely not ideal for a short trade setup. However, the stochastics indicator is still very high, suggesting that the stock has plenty more selling to do. The presence of a lower high and lower low support that theory.
So, if LLY trades below today’s low, it might make sense to take the stock short with a trade trigger of $125.00.
If the market recovers, odds are the trade won’t trigger. But if things get worse? LLY could absolutely plummet.
Especially if it falls past that last lower low.
