This Trade Targets a 100% Return by mid-October

Three of the four main indices moved lower again on Thursday and for the second straight day it was the Nasdaq leading the way lower. The tech laden index lost 0.91% on the day and it was followed on the downside by the Russell which lost 0.71%. The S&P lost 0.37% and for the second straight day the Dow was the lone index in positive territory with a gain of 0.08%.

The sectors were evenly split yesterday with five moving higher and five moving lower. The top performing sector for a second straight day was the utilities sector with a gain of 0.53%. The second best performer was the industrial sector with a gain of 0.30%.

[hana-code-insert name=’adsense-article’ /]The biggest move to the downside came from the energy sector with a loss of 1.81%.

The tech sector continued to experience selling pressure and recorded a loss of 0.74% as the second worst performing sector.

My scans shifted gears a little yesterday and for the first time in 12 days they produced more bullish signals than bearish signals.

The final tally was 18 names on the bullish side and 14 on the bearish side.

The barometer jumped from -31.9 to -12.4. It is still in negative territory due to some rather lopsided bearish days, but it will quickly move higher as the weighting of those days decline—especially if we get a few more bullishly skewed days.

Of all the stocks on the bullish list and bearish list, there was only one chart that really caught my attention. Kinder Morgan (NYSE: KMI) was on the bullish list and the fundamental ratings are split—one above average and one below average. The EPS rating is a 68, but the SMR rating is only a D. Even with that mix, the chart was too much to resist.

We see that the stock has formed an upward sloped trend channel over the last five months and the stock just hit the lower rail of the channel. To form the channel we see instances where the stochastic readings were at or near oversold levels and then reversed. The move in April was good for a gain of over 14% and the move from late May through early July was good for a gain of almost 17%.

Buy to open the Oct18 $16-strike calls on KMI at $1.80 or better. These options expire on October 19. In this case we only need the stock to gain 10% for these options to double. I suggest a target of 100% and a stop at the $17.20 level.

— Rick Pendergraft

[hana-code-insert name=’MMPress 2′ /]

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.