This Trade Targets a 100% Return by October

Three of the four main indices gained ground yesterday, but it was anything but a day where the bulls took control. All four opened in negative territory and then moved in to positive territory during midday trading. None of the moves were big moves, but the Nasdaq led the way with a gain of 0.28% followed by the S&P with a gain of 0.18%. The Russell gained 0.09% and the Dow was the lone losing index with a loss of 0.06%.

While the indices all moved higher, the sectors were primarily lower with seven moving down and three moving higher.

[hana-code-insert name=’adsense-article’ /]The financial sector was the top performer with a gain of 1.34% with the tech sector finishing second best with a gain of 0.51%.

The utilities sector lost 0.71% and the industrial sector lost 0.60% as the two worst performing sectors.

My scans produced nine bullish signals and 32 bearish signals, stretching its run of bearish skews to 11 straight days.

The barometer came in at -32.1.

The trade idea for today didn’t come from last night’s scans, but rather last Friday’s scans.

I felt we needed a bullish trade idea after three straight bearish ones and the subject of the idea is ProShares Ultra Bloomberg Crude Oil (NYSE: UCO). Over the course of the Thursday and Friday, 15 of the 40 bullish signals received were from the energy sector and it was one of them.

You can see that a trend channel has formed over the course of the first half of the year and the fund is now attempting to bounce off of the lower rail. The pattern is similar to what we saw in early June with the stochastic readings and the chart. I am looking for another upward move in the cycle and look for it to move above the $35 level this time.

Buy to open the Sep18 $28-strike calls on UCO at $3.50 or better. These options expire on September 17. These options will double in value at my target of $35. I would suggest a stop-loss point at $28.50.

— Rick Pendergraft

[hana-code-insert name=’investorplace-article’ /]

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.