This Trade Targets a 100% Return in Two Months

All four main indices moved higher again on Wednesday as bank earnings seemed to set the tone for the day. The Russell led the way with a gain of 0.66% and it was followed by the Dow with a gain of 0.59%. The S&P notched a gain of 0.22% and the Nasdaq lagged the others but still managed a gain of 0.15%.

The sectors were evenly split yesterday with five moving higher and five moving lower. As you might have deduced from my comment above, the financial sector led the way with a gain of 2.13% and it was the only sector to log a gain over 1%. The materials sector was second with a gain of 0.39%.

[hana-code-insert name=’adsense-article’ /]Of the five sectors in the red on the day, the consumer staples sector was the worst performer with a loss of 0.54%.

The communication services sector was second worst with a 0.43% loss.

The other three sectors that lost ground experienced more modest losses.

My scans remain bearishly skewed with 84 names on the bearish list and four on the bullish list last night.

One of the reasons my scans continue to produce a large number of bearish signals is due to the number of stocks that are in overbought territory based on their daily stochastic readings and 10-day RSI.

As of the close last night, 365 members of the S&P 500 had slow stochastic readings over 80. The total jumps to 423 if you drop the threshold down to 70.

The barometer moved up slightly from -134.1 to -115.3, but it remains solidly in negative territory.

I hate to keep giving readers bearish trade ideas, but with my scans being so bearish over the last week, they are what make the most sense right now. Today’s idea is another bearish one and this time it is on SeaWorld Entertainment (NYSE: SEAS). The company has mixed fundamentals with a 70 on the EPS scale and an E on the SMR rating.

The daily chart for the stock shows a downward sloped trend channel forming over the last four months and the stock is hovering near the upper rail currently. The stochastics are in overbought territory and have made a bearish crossover like they did in late November—right before the stock dropped from up around $29 all the way down below $22.00.

Buy to open the March $27-strike puts on SEAS at $3.30 or better. These options expire on March 15. These options will double if the stock dips to $21.40 and that is the site of the most recent low. I suggest a target gain of 100% with a stop at $27.00.

— 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.