This Trade Targets a 100%-200% Return in About 10 Weeks

All four indices moved higher after the jobs report on Friday. The report showed more jobs added in June than predicted, but it also showed the unemployment rate jumped to 4.0% from 3.8% which was unexpected. The Nasdaq led the way with a gain of 1.34%. The Russell and S&P registered similar gains of 0.87% and 0.85%, respectively. The Dow lagged the other indices and still registered a gain of 0.41%.

All ten main sectors moved higher on Friday with two gaining more than one percent. The healthcare sector led the way with a gain of 1.44%.

That gain was helped by a 19.6% jump by Biogen (Nasdaq: BIIB).

The tech sector was the second best performer with a gain of 1.17%.

Consumer staples and industrials lagged the other sectors but still managed to log gains of 0.31% and 0.35%.

My scans extended their streak of bullishly skewed readings with 23 names on the bullish list and only five names on the bearish list.

Even with the bullish skew, the barometer dropped from 34.4 to 19.5.

The stock on the bullish list that caught my eye was Rio Tinto (NYSE: RIO).

The metal miner and producer scores a 64 EPS rating from IBD and an A on the SMR rating. The company saw its EPS grow by 35% last quarter while sales grew by 13%. It also boasts a solid profit margin and return on equity.

Rio has been moving higher since early 2016 and the stock tripled from the low to the high. Over the last year and a half the stock has formed a pretty tight trend channel. The stock just hit the lower rail of the channel and looks poised to make its next upward move. I took note of the 10-week RSI dipping below the 50 level and how it has rallied after such occurrences in the last few years. The instances from last June, November, and April were greeted with gains of over 20%.

Buy to open the Sep18 52.50-strike calls on RIO at $3.80 or better. These options expire on September 21. If the stock were to rally by 20% from the recent low, it would put the stock above the $64 mark and these options would be worth at least $11.50. That would be a gain of 200%. I would suggest a target gain of at least 100% and if you want to go for bigger gains I would suggest closing half of the position at 100% and hanging on to the other half. I would recommend a stop at $53.50.

— 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.