This Trade Targets a 100% Return in Seven Weeks

Once again we saw three of the four main indices move higher on Friday, only this time it was the S&P 500 (-0.01%) that lagged the others. The Russell led the way with a gain of 0.36% while the Dow (+0.07%) and Nasdaq (+0.05%) had more modest gains.

The sectors were evenly split on Friday with five moving higher and five moving lower. The utilities sector gained 1.46% to lead the way and it was the only sector to gain over one percent. The telecom sector was the second best performer with a gain of 0.51%.

[hana-code-insert name=’adsense-article’ /]The financial sector was the worst performer on the day with a loss of 1.04% and it was the only one to lose over one percent.

The materials sector suffered the second worst loss at 0.63%.

My scans shifted to a decidedly more bullish skew with 53 names on the bullish list compared to only 16 names on the bearish list.

The barometer moved back in to positive territory with a reading of 6.4, up from -22.4 on Thursday.

There were two industries that represented the majority of the names on the bullish list on Friday—utilities and real estate.

Together these industries accounted for 29 of the 53 names on the bullish list and today’s trade idea comes from the utilities sector. NextEra Energy (NYSE: NEE) was on the bullish list and it scores a 69 in the EPS ratings. The SMR rating is average with a C, but the chart was what really caught my attention.

The stock just hit its most oversold level since June based on the stochastic readings and the 10-day RSI. The stochastic readings just made a bullish crossover and it did so at the bottom rail of its trend channel. After the stochastics crossover in June, the stock gained approximately 8.5% and after the one in May it gained over 6%. I look for a similar move over the coming weeks.

Buy to open the November $165-strike calls on NEE at $5.80 or better. These options expire on November 16. The stock will need to reach $176.60 for these options to double and that would be a move of 5.3% from Friday’s closing price. I suggest a target gain of 100% with a stop at $164.

— 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.