This Trade Targets a Near 200% Return in 6 Weeks

The main indices were evenly split yesterday with two moving higher and two moving lower. The Russell led the way with a gain of 0.29% and the Nasdaq notched a gain of 0.04%. The Dow lost 0.29% and the S&P lost 0.14%. The Dow was in the red most of the day, but the S&P was in positive territory most of the day and then dipped in to the close.

The sectors were also evenly split with five moving higher and five moving lower. The telecom sector led the way with a gain of 1.24% and it was followed by the basic materials sector with a gain of 0.56%.

The energy sector was the worst performer with a loss of 0.94%.

The industrial sector (-0.54%) and financial sector (-0.53%) were neck and neck for the second worst performance.

My scans turned even more bearish last night.

There were 56 names on the bearish list and only nine on the bullish list. The barometer dipped to a reading of -26.

Something I took note of while scanning both the bullish and bearish lists last night was the number of stocks on the bearish list that report earnings in the coming days.

There were at least four that I know of and one of them was Agilent Technologies (NYSE: A). The company reports on Tuesday and the ratings are mixed with an A SMR rating and only a 57 on the EPS rating. The sentiment is skewed slightly to the bullish side—a bearish sign from a contrarian viewpoint.

We see the downward trend in the stock and it just moved above the upper rail and now looks like it will reenter the channel. The big gap lower in May was the result of the company’s last earnings report. Even with the downward trend and earnings miss, analysts are decidedly bullish and short sellers have shied away from the stock.

Buy to open the Sep18 $67.50-strike puts on AMC at $2.60 or better. These options expire on September 21. This is a riskier trade idea because of the earnings report, but if we see a big gap lower like we saw last time, the stock would drop below the $60 level and these options would be worth at least $7.50 and a gain of close to 200%.

— 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.