This Trade Targets a 100% Return in About One Month

Stocks bounced back after a harsh day of selling on Wednesday and all four of the main indices moved higher yesterday. The Nasdaq led the way with a gain of 1.39% and it was followed by the Dow with a gain of 0.91%. The S&P finished with a gain of 0.87% and the Russell lagged the others with a gain of 0.36%.

Nine of the sectors moved higher on Thursday with the consumer staples sector losing 0.13% as the only sector in the red.

The tech sector led the way with a gain of 1.58% and three other sectors posted gains over one percent—telecom (1.28%), industrials (1.13%) and healthcare (1.12%).

My scans remained bearishly skewed last night despite the gains by the indices.

There were 50 names on the bearish list and only four on the bullish list.

The barometer dipped down to -60.7 as a result.

Despite the barometer reading and the bearish skew from the scans, I felt after three straight bearish trade ideas it was time for a bullish one to keep things somewhat balanced.

Macy’s (NYSE: M) was one of the four stocks on the bullish list and I liked the pattern I saw on the chart. The company isn’t as strong fundamentally as a lot of the stocks we play, but it scores an 85 on the IBD EPS rating. The SMR rating is a C.

I marked the last four times the stochastics have dipped below 50 and then made a bullish crossover while also being in the vicinity of the 50-day moving average. As you can see the short-term moves in each case are pretty decent. I look for the stock to make another gain of 12% or more in the next few weeks.

Buy to open the Aug18 $35-strike calls on M at $2.80 or better. These options expire on August 17. For the options to double the stock will need to get to $40.60 and that is just over a 12% gain. In the four periods marked on the chart, the lowest percentage gain was 12.7%. I suggest a target gain of 100% with a stop at $35.

— 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.