This Trade Targets a 100% Return by mid-January

A wave of selling hit stocks again on Monday and it took all four of the indices down. The Nasdaq was hit the hardest with a 3.03% loss as Apple dropped almost 4%. The Russell had the second worst loss at 2.07% while the S&P (-1.66%) and the Dow (-1.56%) experienced more modest losses.

Nine of the ten main sectors fell yesterday with the utilities sector being the lone one in the green with a gain of 0.46%. The financial sector only lost 0.04% as the second best performer.

[hana-code-insert name=’adsense-article’ /]As for the losing sectors, the tech sector got hit the hardest with a loss of 3.81% and the communication services sector dropped 3.03%.

The consumer discretionary sector lost 2.44% and was the only other sector with a loss of over two percent.

My scans flipped to a slight bearish slant last night after three straight bullish skews.

There were 20 names on the bearish list with 14 names on the bullish side.

The barometer fell from 37.4 to 24.6 as result of the new readings.

One name stood out above the rest on the bearish list and it was Altaba (Nasdaq: AABA). The company is what is left of Yahoo and is essentially a tracking stock of Alibaba. The company’s fundamentals aren’t that great with an EPS rating of 21 and an SMR rating of an E.

Like most Chinese stocks Altaba has been trending lower over the last five to six months. In this case a trendline connecting the highs from June and July also seems to be keeping the stock in check now. The trendline is slightly above the 50-day moving average and the stock moved above the moving average on Thursday, but has now dropped back below it.

Buy to open the January 2019 $62.50-strike puts on AABA at $3.60 or better. These options expire on January 18. In order for these options to double on an intrinsic basic, the stock will need to drop to $55.30. That is slightly below the recent low of $55.76. I suggest a target gain of 100% with a stop at $64.50.

— 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.