This HP (HPQ) Trade Could Double Your Money in Seven Weeks

Stocks were mixed once again on Thursday and that led to discrepancy in the results from the indices. The Nasdaq led the way with a gain of 0.68% and it was followed by the Russell with a gain of 0.59%. The S&P notched a small gain (0.14%) and the Dow was the only one of the four to suffer a loss at -0.09%.

The sectors were also mixed with seven moving higher and three moving lower. The tech sector led the way with a gain of 0.85% and it was boosted by solid earnings results from three chip companies on Wednesday night. The energy sector was the second best performer with a gain of 0.58%.

[hana-code-insert name=’adsense-article’ /]Of the three sectors in negative territory, the consumer staples sector suffered the worst loss at 1.25%.

It was followed by the healthcare sector with a loss of 0.85% and the materials sector with a loss of 0.55%.

The scans remained bearishly skewed, but the results weren’t as negative as the two previous nights.

There were 31 names on the bearish list and three on the bullish list.

The barometer moved from -62.8 on Wednesday to a reading of -52.6 on Thursday.

Today’s trade idea comes from the bearish side of the ledger and it is on HP Inc. (NYSE: HPQ). Hewlett Packard’s parent company has struggled in recent years and that has resulted in an EPS rating of 49. The company doesn’t have an SMR rating right now because there isn’t a clear ROE. Sales have only grown at a rate of 6% per year over the last three years and the profit margin is a paltry 5.6%.

We see on the chart that the stock has been trending lower since October and a downward sloped trend channel has formed as a result. The upper rail is right on top of the 50-day moving average and that makes for a dual layer of resistance for the stock. You can see how the 50-day acted as resistance in early December.

Buy to open the March $23-strike puts on HPQ at $1.80 or better. These options expire on March 15. These options will double if the stock falls to $19.40. That price is just above the low in December. I suggest a target gain of 100% with a stop loss at $22.25.

— 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.