This Trade Targets a 100% Return in About 6 Weeks

Three of the four main indices gained ground on Friday with the Dow leading the way with a gain of 0.54%. The S&P was second with a gain of 0.46% while the Nasdaq managed a 0.12% gain. The Russell was the one in the red on the day with a loss of 0.52%. All four logged gains for the week.

Nine of the 10 main sectors moved higher on Friday with two gaining over one percent. The consumer staples sector led the way with a gain of 1.17% and it was followed by the utilities sector with a gain of 1.12%.

[hana-code-insert name=’adsense-article’ /]The fact that the two most defensive sectors led the way on Friday is an interesting development.

The only sector that lost ground on Friday was the energy sector with a loss of 0.52%.

For a second straight night my scans produced more bullish signals than bearish ones.

There were 25 names on the bullish list and 15 names on the bearish list.

The barometer rose to 14.2 from 10.9.

There were a few stocks on the bullish list that garnered my attention, but the one that looked like the best opportunity was Paychex (Nasdaq: PAYX).

The company gets a 74 EPS rating from IBD and it gets an A on the SMR rating. It has a return on equity of 44.4% and a profit margin of 38.3%, both very impressive.

The stock recently dipped down to its 50-day moving average and the trendline acted as support. The stochastic readings dipped down to their lowest level since April last week and have now made a bullish crossover. When this happened in April the stock went on a tear and moved up by 18% in two months.

Buy to open the Sep18 $67.50-strike calls on PAYX at $3.50 or better. These options expire on September 21. Given the current price of the options and the current price of the stock, the stock will only need to gain 6.8% for these options to double. I suggest a target of 100% with a stop at $68.25.

— 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.