This Trade Targets a 100% Return by mid-May

After a day of solid gains for the indices on Tuesday, Wednesday saw all four of them drop. The Nasdaq got hit the hardest with a decline of 0.63% and it was followed by the S&P with a loss of 0.46%. The Russell (-0.23%) and the Dow (-0.13%) saw much smaller losses on the day.

Nine of the 10 of the main sectors declined on the day with the industrial sector being the only one to gain ground. The sector was up 0.11% and it was a welcome reversal of fortune after the sector has been punished by Boeing’s troubles for the last few weeks.

[hana-code-insert name=’adsense-article’ /]The worst performance came from the healthcare sector with a loss of 0.83%.

The energy sector dropped by 0.74% after the oil inventories report showed an increase instead of a drop. The communication services sector had the third biggest decline at 0.70%.

My scans produced positive results for a third straight night and that is surprising given the selling in the market.

There were 61 stocks on the bullish list and 32 names on the bearish list.

The barometer moved in to positive territory with a reading of 13.7 after eight straight days in negative territory.

Even though there were more bullish signals than bearish ones yesterday, I have a bearish trade idea for you today and it is on Campbell Soup (NYSE: CPB). The company’s fundamentals aren’t terrible with B on the SMR rating, but the EPS rating is only a 38. Earnings have declined by 3% per year over the last three years and they dropped by 23% in the most recent quarter.

Campbell’s has been trending lower for almost three years now. The stock hit an all-time high in July ’16 at $62.78 and has moved lower ever since. We see on the daily chart how the highs from the last nine months connect nicely to form a downward sloped trend line and the stock just hit it. We also see that the stock was overbought until yesterday.

Buy to open the May $39-strike puts on CPB at $2.50 or better. These options expire on May 17. The options will double if the stock falls to $34.00. The stock fell down to the $32 level back in December and came close in February which means the stock won’t have to drop to a new low for these options to double. I suggest a target gain of 100% with a stop at $39.00.

— 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.