Thought the Wuhan scare was overblown? So did bulls this morning, as evidenced by the market’s lift to open today’s trading sessions. Then, after the U.S. confirmed its second case of the mysterious new coronavirus, stocks started to fall.
By the afternoon, the major indexes had plummeted. France confirmed two Wuhan infections moments later, marking the first appearance of the coronavirus in Europe.
Over 800 people worldwide are infected (as far as we know). 26 have died.
The S&P, Dow, and Nasdaq Composite are down 0.90%, 0.60%, and 0.65%, respectively.
And amidst the carnage, stocks appear primed to fall further, even though the CDC doesn’t see Wuhan as a public health crisis quite yet.
“CDC believes the immediate risk to the U.S. public is low at this time, but the situation is evolving rapidly,” said Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases.
“We have our best people working on this problem.”
She continued, in a statement to reporters, saying that “the problem with this time of year is it’s cold and flu season and there are lots of cold and respiratory infections circulating.”
So, while investors are left in the dark on how many Wuhan carriers there truly are, bulls seem ready to sell. Even if the coronavirus outbreak doesn’t reach pandemic (worldwide) levels, the fear that it might do so could be enough to kick off a small correction.
Some stocks in particular – like CVS Health Corporation (NYSE: CVS) – are teetering on the edge of a significant dip in response to today’s losses.
And though CVS shareholders might not like it, it’s presented a major shorting opportunity for traders.
In the daily candlestick chart above, you can see that CVS is teetering on the edge of a sell-off cliff. After descending below key support today, share prices eventually recovered.
But still, the stock broke out of its minor bullish trend, running right into the lower Bollinger Band (BB). Typically, I never want to see lower BB contact preceding a short trade.
In CVS’s case, however, we have some very “non-typical” conditions. First, the stock just set a double top, which often accompanies a trend reversal to the downside. CVS also set a lower low last week, and it recently hit the upper BB, too – something that doesn’t usually happen right before lower BB contact is made.
Most importantly, share prices are lingering right at key support. If that price level doesn’t hold, the stock could easily plummet in the coming weeks. And with earnings approaching on February 12th, traders have plenty of time for this to develop into a winning short.
Should CVS fall below the most recent daily candlestick’s low, it might make sense to go short with a trade trigger of $69.82. From there, a protracted sell-off could develop as shares make a rapid descent to $66.00, the next support level, regardless of whether the market can “get over” Wuhan or not.
Awesome post! Keep up the great work! 🙂