This Trade Targets a 50% Return in Two Months

The indices were somewhat mixed with their Friday performances with one posting a loss, two posting small gains and one posting a solid gain. The Dow was the one with a solid gain and it was 0.38%. The S&P only gained 0.11% while the Nasdaq gained 0.03%. The Russell logged a loss of 0.19%. Both the Nasdaq and Russell were both significantly higher in the morning before selling off in the afternoon.

The sectors were also split with six moving higher and four moving lower. The consumer staples sector led the way with a gain of 0.65% while the energy sector posted the second best gain at 0.53%.

[hana-code-insert name=’adsense-article’ /]The telecom sector was the worst performer with a loss of 1.19% and it was followed by the financial sector with a loss of 0.44%.

Citigroup, JPMorgan Chase, and Wells Fargo kicked off earnings season on Friday and the results were underwhelming.

My scans continued their string of bearishly skewed results with 35 names on the bearish list and only five on the bullish list.

Even with the bearish skew, the barometer ticked up a tad from -60.7 to -52.2.

One stock that stood out was Agilent Technologies (NYSE: A) and it was on the bearish list.

Like the trade idea on Macy’s on Friday, this one doesn’t have the weakest fundamentals that I normally look for with a bearish idea, but the chart was the main driver behind the trade.

The stock scores a 58 on IBD’s EPS rating and it gets an A in the SMR category.

The chart shows a downward cycle going back to January with a trend channel forming and a clear pattern from the stochastic readings. The last four times the stock has reached overbought territory and then had the stochastic readings make a bearish crossover, the stock has dropped anywhere from 7.5% to 13.5% approximately.

Buy to open the Sep18 $65-strike puts on A at $3.40 or better. These options expire on September 21. Because the stock would have to break to a new 52-week low, I am setting a lower target profit for this trade idea. I would set a target of $60 for the stock which would put these options at a profit of right at 50%. I would suggest a stop at $65.

— 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.