This Bullish Trade Targets a 150%-Plus Return in Less Than Two Months

Three of the four main indices moved higher yesterday with the Russell moving down by 0.04%. Stocks seemed to recover from the reaction to the Fed changing some wording in its policy statement. The Nasdaq led the way with a gain of 0.68% followed by the S&P with a gain of 0.29%. The Dow logged a gain of 0.22%.

The sectors were more evenly split on Thursday with six moving higher and four moving lower. The utilities sector bounced back with a gain of 1.07% as the leading gainer and as the lone sector to gain more than one percent. The tech sector finished second with a gain of 0.55%.

[hana-code-insert name=’adsense-article’ /]The materials sector was the worst performing sector with a loss of 0.94%.

The financial sector was down 0.36% on the day and that is the fifth straight day it has lost ground.

My scans halted their string of bearishly skewed results last night with 24 names on the bullish list and 14 names on the bearish list.

That is the first bullishly skewed daily reading in five days.

The barometer moved up to -22.4 from -41.8.

After four straight bearish trade ideas, I have a bullish one for you today.

The company is Plains All American Pipeline (NYSE: PAA) and it isn’t the typical trade idea. The company’s fundamentals aren’t as good as what we usually see from bullish trade ideas. The EPS rating is only a 68 and the SMR is a C, but the chart made up for the fundamentals.

The stock has formed an upwardly-sloped trend channel and just hit the lower rail a few days ago. The previous times where the stock hit the lower rail, the ones that formed the channel, saw the stock rally by an average of 21%. I look for another strong rally this time around.

Buy to open the November $23-strike calls on PAA at $2.10 or better. These options expire on November 16. For these options to double, the stock will need to reach $27.40. That is only 11.4% from where the stock closed on Thursday. I would suggest taking half of the trade off the table at 100% and then letting the second half run to see if the stock can reach the top rail of the channel. A gain of 20% from the low on Wednesday would put the stock up at $28.74 and these options would produce a gain of 173% on the second half. I suggest a stop at $23.70.

— 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.