Trade This Stock’s Rally for 115%-Plus Returns by August

Stocks roared back yesterday and in many cases they made up for the losses on Tuesday and then some. The S&P and Nasdaq both gained more yesterday than they lost the day before, but the Dow didn’t quite make up its losses.

The S&P led the way with a gain of 1.27% followed by the Dow with a gain of 1.26%. The Nasdaq lagged the other two, but still gained 0.89% on the day.

[hana-code-insert name=’adsense-article’ /]All ten main sectors moved higher yesterday with all but four gaining one percent or more on the day.

The energy sector led the way with a gain of 3.11% followed by the financial sector with a gain of 1.89%.

The telecom sector lagged the others with a gain of 0.33%.

My scans finally snapped their streak of bearish signals outnumbering bullish signals after 15 days.

The numbers from last night showed 35 bullish signals compared to 13 bearish signals.

This bullish skew led to the barometer moving back toward a neutral reading at -7.9. That is the least negative reading since May 11.

Worldpay (NYSE: WP) was one of the names on the bullish list and the company has great fundamentals with an 88 EPS rating and an A rating in the SMR category from IBD.

We see on the chart that Worldpay has a trendline that connects the closing lows over the past six months and the stock just hit that trendline on Tuesday. You can also see that the stochastics just made a bullish crossover. I look for the stock to rally over the coming month.

Buy to open the July18 $75-strike calls on WP at $6.00 or better. These options expire on July 20. Based on the percentage gain and the length of time of the previous rallies, I look for WP to make a run up to the $88 level. This would put these options at $13.00 and would mean a gain of 117%. I would use the recent low as a stop and get out of the trade if the stock trades below $77.50.

— Rick Pendergraft

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.