Power Trading and Markets – February 28, 2020
The pandemic of Stock Selling Hitting Global Markets
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CURRENT TRADING LANDSCAPE
The markets have sold off precipitously on Thursday and Friday, as the fear and spread of Coronavirus intensified. Most indexes are below their 200 day moving averages. At this point, the bears are in control.
The question is whether or not this is the end of the bull cycle or just a temporary 10-20% correction. I remain bullish on the market and do not believe the US economy will enter into a recession.
I expect market volatility to persist. At this point, it is important for the market to start the bottoming process. Until SPY has a strong snap back rally, which will need to hold for 2 days straight, the bottoming process might not begin.he next support is at $273-280. These levels will take the market close to 20% correction.
I expect the market to trade between $273 and $300 levels for the next 4 weeks. I am hedging my positions using SPY puts.
The rebound in the next couple of days may be quick and can potentially reach $315 level. However, the rebound may also be short-lived and current lows may be retested in March again.
Please follow key support levels on TLT ($142), GLD ($145), and DXY ($98). As long as these support levels are intact, the market is prone to pullbacks.
At this point, I am not opening any new long positions, but are hed and waiting for the market to find the bottom, then I would like to see 2 days of the market making higher highs and VIX dropping back to 20 level.
I updated the Aggressive Power Trader list and added TLT as market participants will continue to look for ways to hedge their positions.
Please watch the Live Trading Room recording where I reviewed SPY trade.
Under the widespread fear of how coronavirus might spread further in countries outside China, there is a race to bring medical remedies to inoculate and fight the virus and stem the risk of further spreading. The biotech and pharmaceutical industries have been given a green light by the CDC, HHS and FDA to bring any and all possible vaccines that are showing positive levels of efficacy to where they can be fast-tracked toward approval and rapid distribution.
As all eleven market sectors are selling off in an aggressive manner, on a pure valuation basis, the large-cap biotech sector is arguably the cheapest when factoring its earnings growth rate. These companies are more like bio-pharma companies and purely biotechnology companies in that they already have at least one or more blockbuster drugs in their pipelines producing hundreds of millions or billions in revenue.
The best way to play the sector as a whole is by trading shares of the iShares Nasdaq Biotech ETF (IBB) – which is an excellent way to approach investing in this sector without having to exercise precision stock picking.
The iShares Nasdaq Biotechnology ETF seeks to track the investment results of an index composed of biotechnology and pharmaceutical equities listed on the NASDAQ. It is currently made up of 2018 holdings, thereby providing extensive diversification and considerably lower volatility than how the underlying stocks trade independently.
The top ten holdings for IBB listed below make up just over 47.91% of the fund’s total assets. Depending on the fundamental and technical analysis, the fund managers will actively adjust individual weightings and which stocks to buy and sell. As is the case with most ETFs, this is not a static portfolio.
Looking at how shares of IBB currently trade within the current market correction, shares of IBB topped out at $123.92 and now trade at $111 and back down to a level where this ETF began a fresh upside move. So, this $110-$111 level has a good chance of holding the line, especially given how the market is looking to this sector to deliver a solution to the coronavirus crisis. The one-year chart below shows IBB trading right at its 200-day moving average, where again if the market can stabilize would argue well as an entry point. The operating phrase being – if the market can stabilize.
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TRADE OF THE WEEK
Of the top ten holdings within the IBB ETF, the most compelling growth story in my view is Vertex Pharmaceuticals (VRTX), which holds the number three spot among all holdings. The company engages in developing and commercializing therapies for the treatment of cystic fibrosis (CF).
The company markets TRIKAFTA, SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO to treat patients with CF who have specific mutations in their CF transmembrane conductance regulator gene. It is also developing VX-814, which is in Phase II clinical trial and VX-864 that is in Phase I clinical trial for the treatment of alpha-1 antitrypsin deficiency; VX-147 for treating kidney diseases; and CTX001 that is in Phase I/II clinical trial for the treatment of beta-thalassemia and sickle cell diseases.
The company is seeing substantial demand for its flagship CF regimen, Trikafta and Vertex delivered stellar fourth-quarter earnings of $1.70 per share, soaring past estimates of $1.21. Revenues of $1.26 billion were up +44.0% year-over-year and also beat Wall Street estimates by a stunning $250 million. The company also raised 2020 revenue guidance from $4.82 billion to $5.10-$5.35 billion. Earnings are forecast to jump by +44% to $7.70 per share in 2020. The average analyst price target is $266 and the stock currently trades at $220 representing potential upside of 20%.
Even more compelling is how my AI tools are measuring the potential for upside reward from shares of Vertex. My Stock Forecast Toolbox 6-month outlook is bullish – again under normal market conditions Vertex gets an “A” Model Grade rating with predicted resistance all the way up to $336. That would be a substantial move from current levels.
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I’ve been trading Vertex successfully within our Tradespoon premium trading services and is a go-to name in the sector for aggressive stock and options trades. My AI tools pinpoint specific bands of entry and exit points that provide the ability for traders to be nimble and consistently profitable.
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I’m only showing a few stocks and ETFs that made up our Thursday night Watch List, so there are plenty of trading opportunities in stocks, and ETFs to put to work on a daily basis. There are typically 10-12 trading strategies to consider.
I also post details of our trading activity and updates on the Watch List at the bottom section of our daily blog. So, make sure to stay tuned in that service as well.
Trading Thoughts: consider buying near the "BUY" level with a "10 days prediction" higher than the close price. In our live trading room. I usually hold a position for 1-2 days and allocate no more than 5% of trading capital to any single trade.
I allocate less than 5% of my portfolio if I hold a position overnight. On average, less than 1% of the portfolio should be at risk if you hold a position less than one day. I personally enter a position at predicted LOW (BUY) price or yesterday's close price. My stop loss is 1% and my target gain is 1% of a stock price. I target 75% accuracy using these signals.
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