Stocks Drop as May Oil Contract Goes Negative

Another unprecedented session at this unprecedented time for the market, as the price of crude oil actually went negative for the front month!

Basically, we’re talking about the May contracts. Due mainly to coronavirus shutdowns, the country’s up to its ears in oil… but there’s little demand and no place to put it.

So the folks who own those contracts went a little crazy and did all they could to get out because they expire tomorrow.

That contract ended Monday’s session at negative $37.63 after plunging in the triple-digits.

And yet despite this ugly historical moment, stocks held up rather well. Sure, the indices were still off by well over 1% on Monday, but we all remember the market in freefall just a few weeks ago.

The Dow saw the steepest decline of 2.44% (or about 592 points) to 23,650.44. That’s pretty bad, but its nowhere near the 1000-point to nearly 3000-point plunges we saw throughout February and March. Nor does it come close to approaching a circuit breaker.

The S&P dipped 1.79% to 2823.16.

And the NASDAQ dropped 1.03% (or about 89 points) to 8560.73, but that again outperformed its counterparts. The index is still getting help from tech, especially stay-at-home powerhouses like Netflix (NFLX, +3.4%), Roku (ROKU, +2.6%) and Amazon (AMZN, +0.8%), just to name a few.

By the way, don’t forget that NFLX reports tomorrow. It will be the first of the FAANGs to go to the plate and it is up nearly 1.2% afterhours as of this writing. 

The market's been in a pretty good mood of late. The spread of the coronavirus appears to be slowing and the Fed is taking robust steps to help the economy during this shutdown. And the folks in Washington may be nearing more help for small businesses (but don’t hold your breath).

Meanwhile, this plunge in oil might be short-lived. The June contracts are holding up rather well and we’re all crossing our fingers that at least parts of the country can open up sooner rather than later. Plus, the OPEC+ cuts don’t start until next month.

The indices are coming off their first back-to-back weekly gains since the coronavirus hit our shores. Given that we’ve quickly recovered about half of the epic plunge already, it will be tough to make it three-in-a-row… especially with the negative start to this week.

But let’s give it a try anyway! 

Today's Portfolio Highlights:

Commodity Innovators: You can bet that if oil plunges nearly 250% in one day, Jeremy is going to have a way to play the turbulence. On Monday, he picked up Energy Select Sector SPDR ETF (XLE). The editor likes the idea of owning a diverse ETF in the energy space, especially with this plunge making the price action in oil very attractive beyond the May contracts. The portfolio also gets a nice 12% dividend for now and a good place to wait for the inevitable oil price rebound. Read the full write-up for a lot more specifics on today’s addition of XLE.

Surprise Trader: This busy week of earnings kicked off today with TWO new buys for the portfolio. Dave added Limelight Networks (LLNW) and Citrix Systems (CTXS), which are both Zacks Rank #2s (Buys) that go into the service with 12.5% allocations. They each report on Thursday as well, but LLNW comes after the bell while CTXS is scheduled before.  

LLNW is a play on the “stay-at-home” economy; it’s a content delivery partner that helps brands monetize their digital assets. The company has an Earnings ESP of 100% heading into its upcoming report. CTXS is a leading provider of virtualization, networking and cloud computing solutions. It has an Earnings ESP of 1.58%. Read the complete commentary for more on today’s additions.

Insider Trader: Insiders can be just as nervous about this economy as any of us, so it sends a powerful signal when one of them spends a million dollars right now. Tracey certainly noticed when the President and COO of regional bank KeyCorp (KEY) added right after the company’s quarterly report last week. It was only one insider buy, but he picked up 100,000 shares at $10.36. The editor thinks this buy sends a strong message that KEY is fine, despite all this craziness in the market and shares being down 45% year-to-date. By the way, the company beat again in its quarterly report from April 16 and put away another $275 million toward loan losses in anticipation for the future. Tracey added KEY on Monday with a 10% allocation. Read the full write-up for a lot more on this new buy.

Technology Innovators: ALL of the positions in this portfolio are positive right now, including six that are up in the double digits. On Monday, Brian found a new name that he thinks can keep up with all these winners. The editor added solar play Enphase Energy (ENPH). While crude prices are plunging, this alternative energy space has held up quite well. Rising earnings estimates have made the stock a Zacks Rank #1 (Strong Buy) and its topline showed growth of 127% in its most recent quarter. Brian likes that the stock is profitable and believes its pricey valuation will come down in the next six months, but he’s getting in now. Read the full write-up for more on today’s addition. 

Black Box Trader: All three of the stocks that were sold in this week's adjustment brought profits to the portfolio, including one double-digit winner. Those deleted positions were:

• Costco (COST, +10.6%)
• Atmos Energy (ATO, +5%)
• McKesson (MCK, +4.9%)

The new buys that filled these newly-opened positions are:

• Eli Lilly (LLY)
• Intercontinental Exchange (ICE)
• Netflix (NFLX)

Read the Black Box Trader’s Guide to learn more about this computer-driven service designed to take the emotion out of investing.

Until Tomorrow,
Jim Giaquinto

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