What to trade? In this post, we show how you can find stocks in a Bear Market? Which stocks tend to be big winners in the next possible uptrend?
Welcome to the Bear Market! On 25. February (yellow arrow) our Market Models showed we are in a bear market. After this, the S&P 500 lost over 30%.
Now we believe its time to start buying moderate some stocks. But which stocks to buy?
We know from our experience that stocks with rising relative strength in a stock market correction tend to be big winners in the next uptrend. Let’s look at some examples.
Walmart (WMT) was very robust in 2008 and still shows relative strength. This is obvious. The coronavirus pandemic drives shoppers to their local grocers to stock up on food and necessities. So Walmart hires 150K new temporary workers. Next you see the monthly chart of Walmart:
Some other companies like Amazon (AMZN) and JD.com (JD) hires new workers too. A good sign!
Logical that companies they are selling cleaning products like Clorox (CLX), soups like Campell Soups (CPB), guns like Sturm Ruger (RGR), or Walmart (WMT) are the winner of the crisis. Here the question arises ironically, who will survive: the man with the cleaning products and the toilet paper or the man with the soups or the man with guns? The last group maybe has the best chance, but buying guns is a typical American and not very civilized. Look at the picture of this article: only stupid white men!
The coronavirus accelerates the trend towards home office. Such companies, like Zoom Video Communications (ZM) had a nice run in 2020.
The other possibility is to buy some big boys. We like Disney (DIS), this stock lost more than 40% for the last high, because of some center parks where closed. But we believe that the success of Disney+ will compensate for some losses. The earnings will be at 5. May, and we will see. We sold June monthly puts with strike 55. If Disney closed above 55 we will get the premium of about 300 $, or we will get the stocks for 55 $. Some other players maybe have the same thought because at strike 55 we see a ten times higher open interest as at the money.
We did the same with Starbucks (SBUX) with selling Jan 2021 put strike 30 and Western Digital (WDC) with a Jan 2021 put strike 20.
Here is some good fundamental news for Starbucks and Western Digital:
Starbucks Says Virus Plan From China Will Work in U.S.
Starbucks Approves Buy-Back Plan of 40 Million Shares as Investors Meet
Is Western Digital (WDC) a Suitable Pick for Value Investors?
Maybe next week we will sell Microsoft (MSFT) June put strike 100 too. We like this video analysis below with Markus Koch and Thomas Rappold on the subject of digitalization. In this video, they asked the question if Apple can buy Disney. We have no problem with that!