The late reversal on Friday was thought to be a positive sign for stocks, but that optimistic thought went out the window as China responded to the latest U.S. tariffs with more tariffs of its own. The back and forth caused investors to question whether a deal was close or if there is still a long way to go on an agreement.
The latest shots in the trade war took a huge toll on stocks on Monday with all four indices moving sharply lower. The Nasdaq took the worst hit with a loss of 3.41% and it was followed by the Russell which fell 3.15%.
Nine of the 10 sectors declined on Monday and the losses varied greatly.
The lone sector that managed a gain was the utilities sector at 1.12%.
The second best performance was the consumer staples sector with a decline of 0.86%.
The tech sector took a huge hit on the day with a drop of 3.75%.
The communication services sector fell 3.05% and it was the only other sector to fall more than three percent. The consumer discretionary sector declined 2.92% and that was the third worst performance.
My scans turned in a second straight positively skewed result on Monday with 21 names on the bullish list and seven on the bearish list. With the selling from last week, many names are in oversold territory and thus the reason for the bullish skew.
The barometer came in with a reading of 40.1, down from Friday’s 43.7 reading.
With all of the selling pressure on the market, a great deal of stocks are oversold on their daily charts and are just coming out of overbought territory on the weekly charts. This makes it tough to choose on the trade ideas. Today the stock that caught my attention was AT&T (NYSE: T). It appeared on the bullish list and it has decent fundamental ratings. The company scores a 64 on the EPS rating and a B on the SMR rating.
The pattern on the chart that I highlighted is called a Three- Rising Valleys pattern and it is a bullish signal. I am looking for the stock to move back up to the $32.50 area at the very least. The recent high in April was $32.32 and the stock could move past that high to challenge the high from the fall.
Buy to open the July $29-strike calls on T at $1.95 or better. These options expire on July 19. In order for these options to double the stock will need to hit $32.90. The high from October was $32.91, putting it right in the range needed. I suggest a target gain of 100% with a stop at $30.00.
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