This Trade Targets a 100% Return (or More) in 3 Months

For the first time since last Wednesday, all four indices moved higher on Tuesday. The Russell 2000 led the way with a gain of 1.02% and it was followed by the Nasdaq with a gain of 0.55%. The S&P and Dow logged similar gains at 0.49% and 0.43%, respectively.

Eight of the 10 main sectors gained ground on the day with the financial sector (-0.71%) and energy sector (-0.27%) being the only two that lost ground on the day. The industrial sector led the way with a gain of 2.19%.

[hana-code-insert name=’adsense-article’ /]The utilities sector gained 1.03% and the healthcare sector gained 1.02% as the second and third leading gainers.

The tech sector gained 0.25% after several harsh days of selling.

My scans were relatively well balanced last night with 21 names on the bullish list and 19 names on the bearish list.

The barometer dipped slightly to a reading of -6.6.

Something I noticed about each of the two lists was that they were both very mixed in terms of the sectors represented, but there wasn’t a single tech stock on either list.

That is quite unusual.

There was one stock in particular that jumped out at me last night from the bullish list and that was Immunomedics (Nasdaq: IMMU). The biotech firm doesn’t have the best fundamental ratings, but the chart was too much to pass up. The company gets a terrible EPS rating of 15 and it doesn’t have an SMR rating because there isn’t a return on equity at this time. That makes this trade much riskier than the usual trade idea and the company reports earnings on August 16.

Obviously it was the chart that caught my eye since the fundamentals aren’t up to our usual standards. The first thing that got my attention was the trend channel. Then I noticed a pattern in the oscillators. When the stochastics and RSI have both been in or near oversold territory, the stock has experienced sharp rallies over the past year. The rally from the beginning of December to the beginning of February saw the stock gain 97% and the rally from mid-March through the beginning of June saw the stock gain 74%. There is also some pessimism toward the stock with a short interest ratio of 6.97 and that gives the stock a greater chance at rallying.

Buy to open the Oct18 $22-strike calls on IMMU at $4.00 or better. These options expire on October 19. The stock will need to reach $30.00 for the options to double and that is a gain of 25.4% from yesterday’s closing price. Given the giant gains mentioned above, that gain seems easily attainable. I would set a target gain of at least 100% and use $22.00 as a stop-loss point.

— 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.