This Trade Targets a 50% Return in 6 Weeks

The indices were mixed yesterday as the Dow moved higher and the other three main indices all moved lower. The Dow gained 0.37%. The Nasdaq was the worst performer with a loss of 0.7% followed by the Russell 2000 with a loss of 0.35%. The S&P hovered near breakeven all day, but lost 0.07% in the end.

Seven of the ten main sectors moved higher yesterday with the energy sector leading the way with a gain of 1.55%. Utilities and consumer staples bounced back with gains of 0.68% and 0.56% after lagging the others on Wednesday.

[hana-code-insert name=’adsense-article’ /]On the downside, the tech sector was the worst performer with a loss of 0.93%.

My scans turned decidedly bearish last night with 86 names on the bearish list and only 18 on the bullish side.

After adding these figures in to the totals, the barometer dropped back in to negative territory with a reading of -26.9.

It had been in positive territory for five straight days.

Given the sudden shift of my scans and the barometer, I am uncertain of whether the upward move continues or if we see another leg lower from the market.

So today’s trade idea is a neutral one. I am suggesting a straddle on Teradyne, Inc. (NYSE: TER). The company has pretty decent fundamentals with an EPS rating of 74 an SMR rating of an A. Those numbers haven’t caused the stock to move higher.

The chart shows that the stock is facing some resistance from its 50-day moving average and the low near $39.50 back in February. Those two layers of resistance could be enough for the stock to move lower, but if the stock manages to break through, it could make a huge move to the upside.

Buy to open the Jul18 39-strike straddle on TER at $3.20 or better. These options expire on July 20. Using a target gain of 50% for this straddle, and assuming there is no value from one side or the other, the stock will need to move to $43.80 or down to $34.20.

— 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.