This Teva Pharmaceutical (TEVA) Trade Targets a 100% Return by mid-June

Wednesday was a bit of an odd day for the market. The Fed announced that it was leaving the Fed Funds rate where it is and that it will be patient in determining its next move. That is what most people expected. The Fed did make an adjustment to excess reserves held by the Fed, lowering it from 2.4% to 2.35%. It was a minor adjustment, but noticeable that it was to the downside.

All four of the main indices started the day in positive territory, but all four ended the day in negative territory. The Russell suffered the biggest loss at 0.93% and it was in negative territory before the Fed announcement.

[hana-code-insert name=’adsense-article’ /]The S&P lost 0.75% and the Dow lost 0.61%.

The Nasdaq was helped by Apple, but still lost 0.57% on the day.

These three indices didn’t move in to negative territory until after the Fed announcement.

All 10 of the main sectors finished in negative territory with differing levels of losses.

The energy sector suffered the worst loss at 2.0%.

The materials sector dropped 1.81% and that was the second worst loss.

In all, five sectors dropped over one percent.

The healthcare sector dropped 0.18% and that was the smallest decline of the bunch. Tech stocks dropped 0.25% and that was the only other loss that was less than 0.5%.

With the selling, my scans turned negative last night with 66 names on the bearish list and eight on the bullish list.

With the decidedly bearish skew from the scans, the barometer turned negative with a reading of -20.7. That negative reading ended a stretch of six straight positive readings.

After a number of bullish trade ideas, I finally have a bearish trade idea for you today.  Teva Pharmaceutical Industries (NYSE: TEVA) appeared on the bearish list and its fundamental ratings aren’t that great. The company scores a 21 on the EPS rating system and a C on the SMR rating scale. The company has seen its earnings decline by an average of 17% per year for the last three years.

The chart has been trending lower for quite a while now. The highs from the last six months connect to form a downward sloped trend line and over the last three months the lows seem to be forming a lower rail. The daily stochastic readings were in overbought territory and made a bearish crossover yesterday.

Buy to open the June $16-strike puts on TEVA at $1.40 or better. These options expire on June 21. In order for these options to double the stock will need to fall to $13.20. Based on the trend and the lower rail, I think the stock can get there. I suggest a target gain of 100% with a stop at $15.95.

— 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.