As defensive trade breaks down, trader sees one patch of safety

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The safety trade is acting like anything but this week.

Defensive sectors health care, staples, REITs and utilities have plummeted this week, offering no real shelter from a broader sell-off.

Bill Baruch, president of Blue Line Futures, said the downturn has taken no prisoners.

“There’s been systematic selling across the board,” Baruch said Thursday on CNBC’s “Trading Nation.” “For about two months you’re seeing the death cross from index to index, you’re seeing a portion of the Treasury yield invert, now you’re seeing the Dow take out February lows, you’re seeing the Nasdaq get near February lows.”

The Dow entered a death cross earlier this week, a technical move where its 50-day moving average moves below its 200-day moving average. The S&P 500 and Nasdaq entered their own earlier this month.

There is one corner of the market that could offer some protection from further downside, said Baruch.

“I’ve been pounding the table on being long Treasurys,” he said. “I’m looking at the TLT and there may actually be a golden cross down the road where you get the 50-day moving average move out above the 200-day.”

The TLT 20+ year Treasury bond ETF tracks the prices of bonds with long-term maturities. The ETF’s 50-day moving average, a measure of short-term trend, has been on the upswing since the beginning of December.

“It broke a long-term downtrend from 2016 and I think there’s upside here to about $127,” Baruch added.

Stacey Gilbert, market strategist at Susquehanna, said that intense selling pressure presents an opportunity for long-term investors to take advantage.

“If your thesis is longer term, one year, two years out, this could be a great time to look for individual names,” Gilbert said Thursday on “Trading Nation.” “The idea of picking names, being more of an active manager as we enter the next two years is going to be incredibly important.”

While the S&P 500 has plummeted 11 percent this month, a handful of its components have eked out gains, including AutoZone, Broadcom and Kimberly-Clark. Stocks such as AMD, Red Hat and Chipotle remain sharply higher for the year.

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