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Feb. 25, 2020, 9:39 a.m. EST

The S&P 500 has to hold this level or risk a 10% correction, warns strategist

Critical information for the U.S. trading day

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By Barbara Kollmeyer, MarketWatch


AFP via Getty Images
Too soon?

Those pinning hopes on a rebound for stocks after Monday’s brutal equity selloff are in for a nervous day.

Stocks are attempting to rally after a choppy morning and New York traders are waking up to find coronavirus headlines are no less worrying on Tuesday. It may just be too soon for some investors to take up Monday’s advice from Berkshire Hathaway’s Warren Buffett, who suggested they could use a selloff to buy a stock they like for even cheaper.

In short, it takes a “brave soul to be buying these markets,” notes Chris Weston, head of research at Australian forex broker Pepperstone, who provides our call of the day.

“When countries are closing borders, the threat of an outbreak is becoming more pronounced in Europe and the Middle East and supply chains are just going to be more disrupted, how do we model risk when we can’t even model economics with any confidence?” Weston asks.

He says any investors tempted to buy stocks right now should keep an eye on this important level on the S&P /zigman2/quotes/210599714/realtime SPX -0.16% .

“If we see price head through 3200, then it will lead to even higher volatility and risk of a 10% drawdown. The bulls need to defend this level or its good night Vienna,” said Weston, who provides the following chart of the S&P 500, which closed down 3.3% to 3,225.89 on Monday.

Now for some advice from a trader who has recently tried to profit from a couple of coronavirus-related drops for equities.

Jani Ziedins, the trader behind the Cracked Market blog , says he dipped a toe in after the market tumbled on a Friday three weeks ago on the first wave of coronavirus headlines. “That trade worked out brilliantly as the market rallied nearly 200-points over the next two weeks and I was fortunate enough to lock in profits near the highs,” he writes.

But he says trying that same move last Friday hasn’t really worked out too well, given Monday’s big rout. However, he bought small, so ended up with a smallish pile of losses. “This is a buyable dip, the only question is when,” says Ziedins.

The tweet

The market

The Dow /zigman2/quotes/210598065/realtime DJIA -0.12%  , S&P   and Nasdaq /zigman2/quotes/210598365/realtime COMP -0.33%   are moving higher, but European stocks /zigman2/quotes/210599654/delayed XX:SXXP -0.52% stayed in the red. Trading was mixed for Asian markets, with the Nikkei /zigman2/quotes/210597971/delayed JP:NIK +2.13% losing 3.3% and the KOSPI /zigman2/quotes/210598069/delayed KR:180721 -0.90%  up 1.2%. Gold /zigman2/quotes/210034565/delayed GC00 -0.29%  is off more than 1% after Monday’s huge gains.

The chart

Here’s a chart that UBS compiled from last Friday. It shows which are the top 10 stocks that investors are most — like Visa /zigman2/quotes/203660239/composite V -0.50%  and Microsoft /zigman2/quotes/207732364/composite MSFT -1.08%  — and least exposed to — Apple:

/zigman2/quotes/210599714/realtime
US : S&P US
2,659.41
-4.27 -0.16%
Volume: 4.22B
April 7, 2020 5:09p
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
22,653.86
-26.13 -0.12%
Volume: 595.87M
April 7, 2020 5:09p
loading...
/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
7,887.26
-25.98 -0.33%
Volume: 3.54M
April 7, 2020 5:16p
loading...
/zigman2/quotes/210599654/delayed
XX : STOXX
324.90
-1.71 -0.52%
Volume: 0.00
April 8, 2020 2:22p
loading...
/zigman2/quotes/210597971/delayed
JP : Nikkei
19,353.24
+403.06 +2.13%
Volume: 0.00
April 8, 2020 3:15p
loading...
/zigman2/quotes/210598069/delayed
KR : Korea Exchange
1,807.14
-16.46 -0.90%
Volume: 907,493
April 8, 2020 3:32p
loading...
/zigman2/quotes/210034565/delayed
US : U.S.: Nymex
$ 1,678.90
-4.80 -0.29%
Volume: 53,401
April 8, 2020 8:27a
loading...
/zigman2/quotes/203660239/composite
US : U.S.: NYSE
$ 168.59
-0.85 -0.50%
Volume: 15.38M
April 7, 2020 6:30p
P/E Ratio
31.60
Dividend Yield
0.71%
Market Cap
$362.19 billion
Rev. per Employee
$1.25M
loading...
/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 163.49
-1.78 -1.08%
Volume: 62.77M
April 7, 2020 4:00p
P/E Ratio
28.46
Dividend Yield
1.25%
Market Cap
$1243.51 billion
Rev. per Employee
$902,473
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