This Trade Doubles Your Money in About 6 Weeks

Stocks got crushed on Tuesday as concerns about the trade talks resurfaced. The consensus seemed to be that the news from the weekend wasn’t as good as initially thought. The Russell got hit the hardest among the U.S. indices and it lost 4.44%. The Nasdaq took a 3.8% hit and the S&P lost 3.24%. The Dow suffered the smallest loss, but it still dropped 3.1% as all 30 members lost ground.

Nine of the ten sectors dropped on Tuesday with the utilities sector being the lone one in the green with a gain of 0.07%.

[hana-code-insert name=’adsense-article’ /]On the down side, the financial sector lost 4.35% and the industrial sector lost 4.25% as the worst performers.

The tech sector almost joined those two with a loss over 4%, but managed to come in just under that threshold with a loss of 3.79%.

My scans turned sharply more bearish on Tuesday with 151 bearish signals and not a single bullish signal.

This caused the barometer to drop to -76.8 from -17.6.

This is the fourth time this year the barometer has dropped below -75.

Given the status of my scans and not having any bullish signals to choose from, you would be right to assume that today’s trade idea is a bearish one.  Plains All American Pipeline (NYSE: PAA) was one of the names on the bearish list and the chart caught my attention. The company’s fundamentals aren’t terrible, but they aren’t great either. The EPS rating is currently at 75, but the SMR rating is a C.

On the chart we see a trendline connecting the highs from the last four months and the stock just hit the trendline on Monday. In each of the three previous instances where the stock hit the trendline, the stock dropped at least 13%. I am looking for a similar drop, if not more, this time around.

Buy to open the January $23-strike puts on PAA at $1.50 or better. These options expire on January 18. These options will double if the stock reaches the $20 level, at least on an intrinsic basis. I suggest a target gain of 100% with a stop at $23.25.

— 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.