This Trade Targets a 140%-Plus Return in About Two Months

Stocks opened lower on Friday, but my midday the indices started moving in to positive territory. By the end of the day, all four of the main indices gained ground. The S&P led the way with a gain of 0.31% while the Dow was close behind with a gain of 0.3%. The Nasdaq lagged the other three indices with a gain of only 0.14%.

For the second straight day, seven of the ten main sectors moved higher. The consumer staples sector led the way with a gain of 1.23% and that is the second straight session it has been among the leaders.

[hana-code-insert name=’adsense-article’ /]The energy sector lost 0.19% and was the biggest loser on Friday after being the biggest gainer on Thursday.

The tech sector was in negative territory for a second straight session with a loss of 0.17%.

My scans remained bearishly skewed with 36 names on the bearish list and 24 on the bullish list.

That is the third straight night where the bearish signals have been greater than the bullish signals.

The barometer came in at -26.1.

One of the stocks on the bearish list caught my eye and it is Chinese internet firm, Inc. (Nasdaq: JD). The company has struggled far more than its peers with an EPS rating of only 31 and an SMR rating of a C. Many of the other Chinese internet firms have EPS ratings over 80 and A SMR ratings.

The chart shows that JD has been trending lower since late January-early February and a trend channel has formed as a result. The stock is bumping up against the upper rail while the stochastics have made a bearish crossover. Another factor is the 52-week moving average sits at $41.30 currently. The trendline has served as both support and resistance in the past.

Buy to open the Aug18 43-strike puts on JD at $3.30 or better. These options expire on August 17. I am looking for a move back down to the recent low of $35 and that would make these options worth $8.00 and would give investors a gain of 142%. You can use the $35 level as a target or you can use a target gain of 100%. I would suggest using the $41.30 level as a stop.

— 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.