Stocks fell today, retracing some of last week’s explosive gains. The Dow and S&P stumbled for losses of 1.39% and 1.01%, respectively, while the Nasdaq Composite reeled off a modest 0.5% gain.
At its daily low, the S&P dropped 2.30%. The Dow sunk 2.61% around the same time.
Both indexes finished the session on a high note, all things considered, and remain within striking distance of a bullish continuation.
But it was the Nasdaq Composite that stole the show today, on the heels of Netflix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN), and Advanced Micro Devices (NASDAQ: AMD), all of which soared over 5%.
Investors have been waiting for another sell-off for weeks. Bulls-turned-bears were expecting one this morning.
Instead of falling flat on its face, however, the market simply stumbled, making matters even more confusing moving forward.
“The market is digesting some very savory returns,” Sam Stovall, chief investment strategist at CFRA Research, said.
“We were up 25% from trough to the most recent peak. While some people might say we’re at the beginning of a new bull market, I think we have to take a wait-and-see attitude.”
The more investors “wait-and-see,” the slower the rally will be. Other analysts, like Chaikin Analtyics’ Marc Chaikin, agree that it might be too early to buy back in.
“The various mitigation efforts to contain the spread of COVID-19 seem to be working. What comes next is very much up in the air,” Chaikin said.
“With the timing of the reopening of the economy now being debated and the economic effects of the engineered shutdown still to be determined, we urge investors to remain wary but watchful as events unfold.”
In particular, Chaikin’s worried that corporate earnings will spoil the party. Bank of America (NYSE: BAC) is set to report on Wednesday and could potentially cast a pall on financial stocks if its numbers are worse than anticipated. Johnson & Johnson (NYSE: JNJ), another blue-chip stock, reports tomorrow.
And if investors end up feeling disappointed, the general market is likely to suffer, too. That means traders might want to start eying “shortable” stocks, especially those that are beginning to round the corner into a downtrend.
Take, for example, Deere & Co. (NYSE: DE), the famous manufacturer of America’s favorite riding mower. Like every other company, DE got smashed in the COVID-19 crash.
And since bottoming, the stock has done quite well. Today, however, it broke out below its minor bullish trend (represented with the yellow trendline), set a lower high, and even eclipsed the 10-day moving average.
Should DE fall below today’s low, it might make sense to go short on the stock with a trade trigger of $136.19. From there, DE has plenty of room to plunge further.
Best of all, the market doesn’t even need to re-test its recent lows for a short DE trade to rack up some quick profits. As long as stocks sell-off rapidly in response to poor earnings, DE could easily generate major returns in a flash.
Right before the market restarts its recovery efforts as COVID-19 (hopefully) continues to subside.
