Dow futures are down nearly 300 points this morning following a 10.6% overnight drop in the Japanese markets. The catalyst for the downside follow-through is a worsening of the nuclear crisis in Japan, where officials have confirmed a significant amount of radiation has been projected into the atmosphere from multiple reactors at the Fukushima Daiichi power plant. The Nikkei was down as much as 14% during the session after a 6.2% drop in the previous session, but pared some of those losses into the close.
Just like yesterday, nuclear-related stocks are down sharply. For example, leading uranium producer Cameco Corporation (CCJ) is down another 16% overnight after a 13% drop over the weekend. A more high profile name that is getting crushed overnight is General Electric Company (GE), which is down around 8%. GE designed the reactors at the Fukushima Daiichi power plant, and is currently in talks to sell reactors to India. Investors believe those and future plans could fall through after the disaster. The real kicker is that the nuclear crisis in Japan could get worse before it gets better. While there has been a significant deal of radiation leaked into the Japanese atmosphere, a full-blown nuclear meltdown could have devastating impact on the environment, population and economy. Oil stocks have also pulled off sharply with expectations of lower demand from Japan.
Watch the T3Live.com Morning Call with Scott Redler below.
The question now for traders is: how do we handle this large down open? The market is not trading on fundamentals at this stage, but rather reacting emotionally to headlines. Eventually, that should create a great buying opportunity, but you don’t want to try aggressive longs too early. If you created a gameplan last night, you can likely throw it out the window. In this sort of tape, identify leading stocks in each in-play sector and watch those closely. You don’t want to spread yourself too thin. Panic and uncertainty creates opportunity for level-headed traders, but only if you approach the situation directly.
As far as sectors to watch, Marc Sperling of T3Live.com believes you can look towards high beta tech stocks and semiconductors for a potential bounce. Apple Inc. (AAPL) is set to open just below its 50-day moving average that has acted as strong support over the last six months. Baidu.com, Inc. (BIDU) also still sits above its 50-day MA and even still inside its recent range, so it should definitely be on the radar as a long.
If you are a subscriber, make sure to tune into the T3Live.com Virtual Trading Floor to see what real, experienced professional traders are trading and saying in real-time during the trading day. The real action and trading decisions will occur intraday today as we measure composure early in the session.
*DISCLOSURE: Long AAPL, BIDU, GLD, SLV; Short SPY
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