2 Prudent Trading Ideas as We Navigate a Substantial Selloff

Wow, it has certainly been ugly in the markets the past few trading sessions. We opened a week with all the major indices falling 3% to 4% and with the Dow down 1,000 points, its biggest daily loss in around two years. After a slight rebound to start trading on Tuesday, equities gave up gains and by the end of the day suffered similar losses. The S&P 500 has now shed $1.7 trillion worth of value in just two days this week. The 10-year Treasury yield is at all-time lows and gold is at a seven-year high on a big flight to safety trade over the past week. If nothing else the last week of trading has reinforced the old Wall Street adage that one tends to make money in the market slowly, but lose it quickly. As it stands now, I could see the market losing 10% to 15% of its value thanks to the current panic when all is said and done. Obviously, things could get significantly worse if this turns out to be a global pandemic that impacts economic activity for any duration of time. Of course, equities could stage a big rebound as soon as there is confidence that the coronavirus is on its way to being contained. Given that outlook, I am buying this dip very incrementally and have the ammo to do. I have spent the last few quarters building up my cash allocation in my personal portfolio, which I have highlighted many times in these columns. My view is it is too soon to go wading in the hardest hit parts of the market such as travel-related concerns, individual energy equities or auto stocks. That said, there are some things I am buying or adding to, mainly within buy-write or covered call strategies. I took a new position in giant health concern Anthem Tuesday via a buy-write order utilizing just out of the money September call strikes. ATHM stock has fallen some 15% over the past week due to the selloff in the overall market and the surge of Senator Bernie Sanders in the presidential nomination process. This has ignited fears the industry could face substantial new regulation or private health care might be eliminated all together to make way for what is known as Medicare for All. Judging by the increasingly negative media coverage on Senator Sanders since the Nevada caucuses, I see him on the way to being knee-capped, which was also on display in Tuesday night's debate. Whether that will be enough to keep him from winning the nomination is a big unknown, but it certainly will hurt him in the general election. With the recent pullback in its shares, Anthem is trading for under 12x forward earnings estimates even as analysts expect earnings growth in the mid-to high teens on a revenue increase in the low teens. I also added a few shares outright in Entercom Communications . The stock was up some 5% in trading Tuesday, one of the few equities that ended in the green. We have profiled this potential turnaround play on these pages before. The broadcaster reported top and bottom-line numbers in its fourth-quarter earnings report Tuesday, both of which beat expectations. Management looks like it is starting to execute on its integration plans. In addition, with the obscene amount of money being spent on political ads and no overseas exposure, Entercom seems well placed to hold up even if the panic around the coronavirus spreads in coming days and weeks.

2 Prudent Trading Ideas as We Navigate a Substantial Selloff

I am cautious but still making incremental moves.

Columnist Conversation

This Weekend On Real Money

Wednesday Morning Fibocall for 11/25/2020

Fibocall: Watching the INDU, but Trading the DIA

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.