This Trade Could Double Your Money in About One Month

Stocks finally caught a break on Tuesday and the indices opened higher for the first time in seven trading days, and they managed to hold on to most of the gains. The Russell led the way with a gain of 1.32% and it was followed by the Nasdaq with a gain of 1.14%.

The Dow and S&P didn’t manage to keep the gain above one percent, but they did notch gains of 0.82% and 0.80%, respectively.

The sectors were the opposite of Monday, nine of the 10 sectors moved higher and the only one that was in negative territory was the utilities sector with a loss of 0.67%.

The smallest gain and therefore the second worst performance was from the consumer staples sector at +0.48%.

The tech sector was the worst performer on Monday and it was the best performer on Tuesday with a gain of 1.61%.

The energy sector moved up 1.22% as the second best gain.

The industrial sector (+1.04%) and the consumer discretionary sector (+1.01%) were the only other sectors to move up at least one percent.

My scans remained bullishly skewed with 19 names on the bullish list and three on the bearish list.

The barometer fell to 34.4 as the big bullish list from Friday dwindles in its weighting in the overall calculation.

Given the small number of bearish signals to choose from, today’s trade idea is a bullish one and it is on the SPDR S&P Homebuilders ETF (NYSE: XHB). The XHB was on the bullish list and there was a bullish signal from the Tickeron AI Trend Prediction tool.

We see on the daily chart that a trend channel has formed over the last four months. The fund is down by the lower rail of the channel at this time and the 50-day moving average is in the same area. I look for the fund to make a similar move to what we saw from mid-March through when it gained 11.6% from the low to the high.

Buy to open the June $39-strike calls on XHB at $1.90 or better. These options expire on June 21. In order for these options to double the fund will need to reach $42.80. That level is above the recent high and it will be close to where the upper rail is in a few weeks. I suggest a target gain of 100% with a stop at $39.15.

— 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.