This Trade Targets a 100% Return in About 6 Weeks

After the May employment report came in about as well as it could Friday morning, stocks moved solidly to upside. All three of the main indices gained ground with the Nasdaq leading the way with a 1.51% move. The S&P gained 1.08% and the Dow gained 0.9% on the day. In a reversal of roles, the Russell lagged the main three with a gain of 0.88%. The RUT has been outpacing the main three in recent weeks.

Eight of the ten main sectors moved higher on Friday while one broke even and another lost ground. It was the utilities sector that lost ground and it lost 1.53%.

The consumer staples sector was the one that broke even.

On the plus side, the tech sector led the way with a gain of 1.7% followed by materials with a gain of 1.53%.

In all there were six sectors that gained over one percent.

My scans were bullishly skewed for the third straight night and the ratio was 72 names on the bullish list compared to 25 names on the bearish list.

My barometer jumped to a reading of 25.1 from 5.5.

One of the names on the bullish list was Charles Schwab Corp. (NYSE: SCHW).

The company gets a 95 rating on IBD’s EPS rating system and it receives an A in the SMR category. Earnings have been growing at a rate of 25% over the last three years while sales have been growing by 15% over the same time period.

On the technical side, the stock has formed a trend channel over the last nine months and it is down in the lower half of the channel currently. We also see that the stochastics just made a bullish crossover and that has been a sign of upward movement over the last nine months.

Buy to open the Jul18 $55-strike calls on SCHW at $3.40 or better. These options expire on July 20. For these options to double, the stock will need to get above the $60 level. The upper rail of the channel is well above that level. I would suggest a target of 100% on the plus side with a stop at $54.50 to protect the downside.

— 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.