The indices were relatively quiet yesterday ahead of the Fed decision tomorrow. The Dow lost a fraction and the other three indices moved higher on the day. The Nasdaq led the way with a gain of 0.57% followed by the Russell with a gain of 0.39%. The S&P logged a gain of 0.17% and the Dow lost 0.1%.
Six of the ten main sectors were higher on Tuesday with the utilities sector leading the way with a gain of 1.18%. The telecom sector gained 0.54% as the second best performer and the tech sector gained 0.5% as the third best.
For the fourth straight night my scans produced significantly more bearish signals than bullish signals.
The totals from last night were 47 names on the bearish list compared to only 12 on the bullish list.
The barometer came in with a reading of -37.4.
There were several stocks that caught my eye last night with one on the bullish list and two on the bearish list.
The one I felt the most confidence in was a bearish play on Johnson & Johnson (NYSE: JNJ). The company does have decent fundamentals with an EPS rating of 67 and an SMR rating of an A, but the EPS rating has slipped in recent months. It was above 80 back in February.
The last three times the stochastic readings have reached overbought territory and then made a bearish crossover are marked on the chart. As you can see the stock has lost from 8.7% to 14.9% on these moves. Now we have another one and it comes right after the stock hit resistance at its 50-day moving average.
Buy to open the Aug18 125-strike puts on JNJ at $4.50 or better. These options expire on August 17. I think we see a repeat of the pattern and the stock drops at least 8.5% on this next leg down. From the high last Friday, an 8.5% drop would take the stock down to $114.23 and that would make these options worth $10.77 and a gain of 139%. You can use this as your target or 100% if you are more comfortable. I would suggest a close above the 50-day as a stop.
— Rick Pendergraft