Friday saw selling pressure reenter the picture, meaning we saw positive days in the three middle days of the week and losses on Monday and Friday. The Russell suffered the worst loss on the day at 1.38%. The Nasdaq’s loss also eclipsed the one percent mark at 1.04%. The S&P dropped a more modest 0.58% while the Dow managed to keep its loss to only 0.38%.
Nine of the 10 sectors fell on Friday. The only one that managed a gain was the utilities sector at 0.53%. Utilities were one of two sectors that gained ground last week with consumer staples being the other sector in positive territory on the week.
[hana-code-insert name=’adsense-article’ /]The worst performing sector on Friday was the industrial sector which fell 1.08%.The energy sector dropped 1.01% and it was the only other sector that declined more than one percent.
The thing that stood out the most regarding my scans on Friday was how small both lists were.
There were 10 names on the bullish side and only seven on the bearish side.
The total of only 17 signals is one of the smallest totals we have seen in quite some time.
The barometer fell from 66 to 47.9 once these results were added in to the equation.
I didn’t like any of the setups from the bullish list or the bearish list. So for today’s trade idea, I have a bullish setup on a stock that is scheduled to report earnings this week. Toll Brothers (NYSE: TOL) is scheduled to report on Wednesday and the setup is similar to what we saw in late 2016. The company scores a 97 on the EPS rating and an A on the SMR rating.
The weekly chart shows how the stock just saw its 13-week moving average cross bullishly above its 52-week moving average. The stock has been held in check by the 104-week moving average and that is what happened in November ’16. It was an earnings report in February ’17 that gave the stock a boost back then and I look for a similar move this time.
It is also worth mentioning that there is tremendous bearish sentiment toward Toll Brothers ahead of the report. Only five of 19 analysts following the stock have it rated as a “buy” and the short interest ratio is at 4.3.
Buy to open the June 37-strike calls on TOL at $2.65 or better. These options expire on June 21. In order for these options to double the stock will need to reach $42.30. The stock needs to move up approximately 10% for these options to double. The stock moved up over 12% in the weeks following the earnings report in February ’17. I suggest a target gain of 100% with a stop at $37.15.
— Rick Pendergraft
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