This Trade Targets a 100% Return in 6 Weeks

Stocks experienced another big move higher on Wednesday with all three indices moving higher on the day. The rally came after China made an offer to increase its goal of purchasing more U.S. goods. The Dow led the way with a gain of 1.4% followed by the S&P with a gain of 0.86%.

The Nasdaq lagged the other two indices, but still managed a gain of 0.67%.

[hana-code-insert name=’adsense-article’ /]Nine of the ten main sectors moved higher on the day with the two main defensive sectors, utilities and consumer staples, lagging the others.

Financials led the way with a gain of 1.86% followed by the materials sector with a gain of 1.85%.

Utilities lost 2.26% and staples only gained 0.08%.

Despite the big up day, my scans produced more bearish signals than bullish signals last night.

The final tally was 29 names on the bearish list and 28 names on the bullish list. This dropped the barometer down to 5.4.

With the rally over the last four days, all of the bearish trade ideas for the past few weeks have been stopped out, leaving us with nothing but bullish positions. With that in mind, I really focused on the bearish list tonight and have a bearish trade idea for you today. The stock is HCP Inc. (NYSE: HCP) and is a REIT with poor fundamentals. The EPS rating from IBD is only 8 and the SMR rating is a D.

The weekly chart shows how HCP has been in a downtrend for the better part of the past year. It has rallied back over the last few months, but it still hasn’t overtaken its 52-week moving average. The stock is overbought on both the weekly and the daily stochastics and I look for another leg to the downside.

Buy to open the Jul18 $25-strike puts on HCP at $1.25 or better. These options expire on July 20. The stock will only need to drop to $22.50 for these options to double and that is only a 6.8% drop from the current level. I suggest a target profit of 100% with a stop at $25.

— 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.