It’s been yet another wild ride on Wall Street this week.
Stocks got absolutely slaughtered on Monday, with the Dow Jones Industrial Average (DJI) suffering its worst session since the 2008 financial crisis, as OPEC news sent oil prices reeling and added salt to traders’ proverbial wounds.
The whipsaw action continued yesterday — this time to the upside — with stocks erasing a big chunk of Monday’s losses, after President Trump touted a payroll tax cut to help stem the economic tide of the coronavirus.
The virus has essentially obliterated demand for air and cruise travel, and sparked a few fights over toilet paper at nationwide Costcos, for some reason…
^^live footage of the line to buy two-ply^^
Even Harvard is telling kids to not come back from spring break, and our own trading legend Nathan Bear is feeling the effects harder than all of us, due to a coronavirus scare with a staff member at his kid’s school.
However, even with the SPDR S&P 500 Index ETF (SPY) testing its May 2019 lows, there are still some pockets of relative strength to be found…
As I told my paid subscribers to Weekly Windfalls yesterday — I’m looking to sell premium on stocks that held at or above the 89-day exponential moving average (EMA) during the recent pullback.
But Jay, you ask, why THAT trendline?
There are two types of moving averages: simple and exponential.
A simple moving average (SMA) is basically a straightforward average of the stock’s price over a certain timeframe.
The 50-day and 200-day SMAs are two of the most popular trendlines watched on Wall Street, for instance.
An EMA gives more weight to recent price action, so it changes directions faster and is often used as a momentum indicator.
EMAs are often used by day traders or short-term traders like me.
So… why the 89-day EMA?
Sounds arbitrary, right?
As far as in stocks, many traders — including yours truly — use Fibonacci retracement levels as entries on stocks that have pulled back from recent highs, and some traders even use Fibonacci extensions to time profit targets.
In fact, I expect to be using Fib extensions quite a bit in Jason Bond Picks soon…
That said, during the recent stock market sell-off, I’ve been using the 89-day EMA as a sort of line of demarcation.
Basically, nearly every stock blew through their 89-day EMA in this crash, so any stock that held above it indicates buyers at higher prices — and also the ability to hold their own despite this market.
In a nutshell, if the market stabilizes or heads higher, stocks that outperformed during the sell-off should be a head up faster than others.
So… let’s get to it.
Here are seven stocks that have outperformed during the sell-off — and that could lead a rebound.
7 Coronavirus Stocks on My Watch List
Clorox (CLX) is on the Coronavirus Watch List for obvious reasons. I mean, when mega retailers can’t keep cleaning supplies in stock, you may just be able to avoid the fiscal concerns plaguing many companies right now.
NOT ONLY is CLX stock staying above its 89-day EMA, it’s been HITTING NEW HIGHS in this mess!
In fact, as of yesterday’s close, Clorox was on the list of 29 S&P 500 Index (SPX) stocks that have managed gains over the past month.
Dollar General (DG) stock was also on that list — and mine. The shares have outpaced the SPX (and then some), as consumers have flooded retail stores to load up on pantry supplies.
DG shares are now testing the highs they achieved on Feb. 21. Perhaps even better… Not only is the discount retailer showing divergence, its MACD line is about to cross above the signal line!
Without getting into the nitty-gritty, when the MACD — which stands for Moving Average Convergence/Divergence — line crosses above the red signal line (see the bottom pane of the DG chart below), it’s considered a sign that momentum has shifted from bearish to bullish.
Netflix (NFLX) has been on the Street’s collective radar basically since the coronavirus broke out, amid expectations that the streaming business could grow as consumers opt to stay inside for entertainment rather than go out.
As I said, stocks that have held their ground atop their 89-day EMAs when most equities haven’t — that outperformance speaks volumes during a market crash, and should bode even better once the market finds a bottom.
Nvidia (NVDA) is a chip stock, and could benefit as coronavirus fears keep people at home playing video games (in which Nvidia components are featured).
In the same vein, Zynga (ZNGA) was on my Watch List for similar reasons. Shares of the mobile app maker have also managed to stay north of their 89-day EMA.
With more employees opting to work from home during the virus scare, it’s no surprise to find Slack Technologies (WORK) — what we use for intercompany communication at RagingBull, in fact — has kept its head above water (and by water I mean that key trendline).
Some higher-education schools even use Slack, and I wouldn’t be surprised to find more colleges follow in the footsteps of Harvard and others in going to online-only classes until this health scare peters out.
However, Slack reports earnings tomorrow, March 12, which will determine WORK’s near-term trajectory.
DocuSign (DOCU) has also brought the office into living rooms. The company provides technology that allows firms to manage electronic agreements, and offers eSignatures.
And, of course, DOCU popped up on my list due to the stock’s ability to keep afloat atop its 89-day EMA.
I mean, just to hammer it home — and prove that not all “stay at home” stocks have outperformed — take a side-by-side gander of DOCU shares versus FAANG giant Amazon (AMZN), in teal below.
Is the coronavirus sell-off overdone? I would like to think so, but only time will tell.
But when stocks do find a bottom, the seven equities above could continue to outperform.
I mean, the PowerShares QQQ Trust ETF (QQQ) — which is essentially a thermometer for tech stocks in general — still has a ways to go before covering its February gap, so if the exchange-traded fund (ETF) continues to retrace its plunge, the Nasdaq-listed stocks above, especially, should continue higher too.
I will continue to keep an eye on this Coronavirus Watch List, and if the opportunity presents itself, I’ll put on bullish trades — either by purchasing call options in Jason Bond Picks or Jackpot Trades, or by putting on bull put spreads in Weekly Windfalls.
The beauty of Weekly Windfalls right now, especially, is that it revolves around my high-probability “casino strategy.”
Even when the Dow and S&P 500 were assailing record highs, this strategy gave me the best odds in the house, so to speak.
That’s because most options expire worthless, so you’re more likely to win as an option seller — which I am in Windfalls.
But the “kitty” is even sweeter for option sellers during times of broad-market fear, like right now, because market volatility drives option prices higher…
Meaning while everyone else is running to Costco and Dollar General for toilet paper, I can rake in that REAL paper — dollar bills, y’all.