Option Trade of the Day: SPDR S&P Retail ETF (XRT)
The market bounced back a little yesterday, but the indices closed well off of their highs. At the highs of the day, the S&P was up approximately 2%, but all three of the main indices saw their gains pared considerably. The S&P gained 0.33% on the day while the Nasdaq led the way with a gain of 0.51%.
[hana-code-insert name=’adsense-article’ /]Seven of the ten main sectors moved higher on the day, but there was a considerable disparity between the winners and the losers.Healthcare and tech led the way with gains of 0.98% and 0.77%, while industrials and consumer discretionary lost 0.3% and 0.22%, respectively.
My scans were decidedly bearish last night with 58 bearish signals and not a single bullish signal.
This caused my barometer to drop to negative 21.2.
This could be a bad sign for the market over the next few days.
The SPDR S&P Retail ETF (NYSE: XRT) was among the bearish signals and one thing that jumped out at me was the number of retail names that were on the bearish list. For that reason, I have a bearish trade idea on the XRT for you today.
Looking at the chart of the XRT we see that the fund has had trouble moving back above its 50-day moving average over the last couple of months. It also caught my eye that the stochastic readings made a bearish crossover. There is minor support in the $44.65-$44.75 range, but if we get down there again, this will be the fourth test of that level in the last two months. I look for a break of that support and see the blue line as the next layer of support and that is down at $41.70.
Buy to open the May18 45-strike puts on XRT at $1.70 or better. These options expire on May 18. If the XRT dips down to $41.70 like I am projecting, the intrinsic value of these options will be $3.30 and that would be good enough for a 94% gain. With any luck, the options will still have some time premium priced in and we can collect a 100% gain.
— Rick Pendergraft
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