This Trade Targets a 100% Return in 6 Weeks

Stocks soared on Friday as the April employment report came in with more job growth than expected. All four indices moved sharply higher as a result, but the Russell topped them all with a gain of 1.98%. The Nasdaq also had an impressive gain at 1.58%. The S&P (0.96%) and the Dow (0.75%) had smaller gains, but they were still pretty impressive.

All 10 sectors moved higher on the day and the industrial sector jumped by 1.21% to lead the way. The consumer discretionary sector had the second best performance with a gain of 1.18%. As impressive as the gains were for the indices, these two sectors were the only ones to finish with gains over one percent.

[hana-code-insert name=’adsense-article’ /]The utilities sector experienced the smallest gain at 0.55%.

All of the other seven sectors finished with a gain between 0.75% and 0.98%.

My scans stopped their streak of negative readings at two with a positive result on Friday.

There were 33 names on the bullish list and 15 on the bearish list.

The barometer rose from -23.8 to -9.5 once these results were added in to the equation.

The trade idea for today came from the bullish list and it is on the SPDR S&P Biotech ETF (NYSE: XBI). After the dip in mid-April, the fund appears to have found its footing. The Tickeron AI Trend Prediction tool I use from time to time generated a bullish signal on the XBI on Friday and it shows a confidence level of 88%. Previous predictions on the XBI have been accurate 88% of the time.

We see the sharp decline from April 5 through April 18. That pullback that hit the biotech and pharma industry stocks seems to have been unwarranted. The XBI bounced a little after the initial pullback and then dipped again. This looks like a double bottom pattern to me and I expect the fund to rally sharply in the coming weeks.

Buy to open the June $85-strike calls on XBI at $4.50 or better. These options expire on June 21. In order for these options to double the fund will need to reach $94.00. That is slightly above the high on April 5, but I think the fund can reach our target. I suggest a target gain of 100% with a stop at $84.50.

— 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.