Is This a Free Fall?

2020-02-27 | Allison Ostrander

The market has seen a strong pullback this week. To some traders, this is due to the ever-growing concern of the coronavirus and how it is not only going to affect China’s economy, the 2nd largest in the world, or the overall global economy. As many companies shift their guidance lower for next quarters earnings, many have remained optimistic that they will still meet their end of year targets. As of right now, it is still hard to say how many quarters the coronavirus will effect. Even though the cases seem to be going down in China, across the world, many other countries continue to see an uptick in cases and death. Given that it is now becoming more of a global concern, rather than a more isolated event in China, it is easy to see how this could bleed into more than one quarter.

Other traders see this move down as a much needed pullback from the technicals. Both Weekly and Monthly Chart time frames were showing levels and extension and exhaustion. With this pullback we are finally starting to see some of the indicators have a reset. I tend to mainly focus on SPX as my index of choice, and currently the longer time frames remain bullish. The first levels of support I am watching are 3100 on a Weekly time frame and 3000 on a Monthly time frame. If the price can still hold at or above these levels as support going into the close Friday, then the long term bullish trend remains intact. This could create a potential buying opportunity to jump back in the market. At the same time, I would not expect the market to go shooting up from here to create new all time highs. Keeping the coronavirus and how that will affect the global economy still in mind, I think overall we could be headed for some consolidation as the market digests the next few earnings season.

SPX Monthly Chart

So what are some safer picks to look at when trading in this uncertain market? I personally am looking at symbols and sectors that either could benefit from the coronavirus or will not be as affected by it. The first symbol I am looking at buying back into this market pullback is NFLX. NFLX is one of the few FAANG stocks that is likely to not be as affected by the coronavirus compared to some of the others. NFLX does not rely on manufacturing in China to keep its numbers up, and the consumer aspect is all done digitally. As some countries, like Japan, are shutting down all schools for the month to help stop the spread of the virus, NFLX might see a bullish move up as people are stuck at home looking for ways to entertain the kids and family.

NFLX

Another symbol I like for bullish sentiment higher is CLX. CLX is a company that could benefit from the coronavirus outbreak. As people find ways to stop germs from spreading, clorox wipes and cleaning supplies are going to be a go to. This, along with the overall technicals remaining bullish, could make for a safe pick to hold long in your account the next couple of months.

CLX

No matter what the catalyst was for this pullback, I still remain a cautious bull in this market. If the price does starts to break below 3000, then we may be in line for a stronger pullback. As of right now though, support is still holding so I will remain patient as I watch the charts.