U.S. President Donald Trump suddenly threatened to hike tariffs on Chinese goods this week, sending stocks into a tailspin. But while investors are reeling, we've uncovered a way to turn the sudden sell-off into 260% gains.
You see, while the trade war with China ignited the sell-off, the downturn in stocks was entirely predictable.
After 18 weeks of nearly straight-line rallying, the S&P 500 finally ran into a ceiling. With slowing momentum selling at the previous all-time high set last October, it seemed like a natural place to expect some problems.
The president's tweet about new tariffs on China might've sparked the reversal, but this dip was a long time coming. In fact, the market peaked last week, days before the news broke that China might step away from the bargaining table. Was this really a surprise?
Investors should take this as good news.
There is still nothing inherently bad on the horizon that will send the economy into recession. In fact, with increased job growth, wage growth for the lowest-paid workers, and record-low unemployment, it is hard to make the case for anything but continued prosperity.
But that is not to say that the stock market cannot get ahead of itself. This has been a pretty powerful rally, and excesses naturally build up. The trouble with China is merely trimming the fat.
And that makes this a perfect time to expect a shake-out. Stocks that got pulled along with the market are likely to find their day of reckoning when investors realize they are not quite that strong.
$1 Cash Course: Tom Gentile is offering a rare opportunity to learn how to amass a constant stream of extra cash - year after year. And he's going to teach you how to do it entirely on your own. Learn more...
Money Morning Quantitative Specialist Chris Johnson believes that transportation stocks are a ripe candidate to fall. These are like canaries in the coal mine in that they seem to stumble on only a hint of economic decline. A trade war with China, unlikely as it may be, is providing that hint. Trucking companies in particular are vulnerable.
Make no mistake, Chris believes the market is undergoing a needed cleanse and will eventually get back in rally mode. But why not make some money as the imposters are exposed?
Chris's technical analysis revealed one trucker that is already showing its weakened condition.
And this options play could turn its fall into 260% profits for you...
How to Make Money on Bad Stocks
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Chris found JB Hunt Transport Services Inc. (NASDAQ: JBHT) to be an ideal candidate to profit from the general market pullback and overall weakness in trucking. But he does not short stocks. There is too much that can go wrong, including being on the hook for unlimited losses, should the stock rally instead of fall.
Rather, he uses options to profit from JBHT's decline with limited risk and the potential for very large percentage gains.
After bottoming with the market in December, JBHT rallied nicely, but only through mid-February. Since that time, it's all been downhill, and the stock gave up roughly 90% of its gains at its lowest point last week. That's a sign the stock was merely pulled along by the market's bull run and not because it was good enough to rise on its own. The subsequent weak bounce sets this stock up for a drop all the way back to its December low and possibly below it.
Chris expects the stock to plunge from its current price of $95.25 all the way to $90 or below. By using put options, we can maximize our returns on this fall for triple-digit gains. We booked 218% gains using an identical strategy just last month.
For this trade, Chris recommends buying a put option with a short time to expiration such as mid-May or possibly June. Since the December low was $88.38, a put option with a $90 strike price makes the most sense. The May 17 $90 put closed Wednesday (May 8) at $0.45.
At expiration, should the stock drop to the December low, the option will be worth $1.62 for a gain of $1.17, or 260%. In contrast, shorting the stock would have gained $7.61, or 7.9%. And you would have had to tie up $9,599 per 100 shares to get it. The options trade costs $45 per contract (all before commissions).
Remember, the market looks like it is purging weak stocks and sectors that got swept higher in the bullish trend. Once completed, the market shows signs that it has a little more life left in it and will move higher again.
This Historic 20-Trade Winning Streak Is Unstoppable
With his brand-new Infrared Index, Chris Johnson is able to identify specific trigger points that tell him where a stock is anticipated to be headed over the next 24 hours.
The result? A winning streak others could only dream of... We're talking 20 consecutive winning trades, totaling 950% in gains!
Now, he has a new trade recommendation coming out tonight - so if you want in, you better strike now.