This Trade Targets a 100% Return in 6 Weeks

Stocks shook off a disappointing employment report and moved higher again on Friday. For the main three indices that made it four straight days of gains after struggling for the previous four weeks.

The Nasdaq was the big winner on Friday with a gain of 1.66%. The S&P moved up 1.05% while the Dow tacked on 1.02%. The Russell was the only one of the four that didn’t gain over one percent, but it did gain 0.72%.

Eight of the 10 sectors moved higher on the day Friday.

Utilities lost 0.74% while financials were down 0.15%.

Those were the only two that lost ground.

On the plus side, the tech sector led the way with a gain of 1.86%.

The communication services sector had the second best gain at 1.62%.

The consumer discretionary sector tacked on 1.45% and the healthcare sector added 1.04% to give us four sectors that gained over one percent.

My scans produced a negative reading on Friday and that is the first one in the last eight trading days. There were 26 names on the bearish list and only three on the bullish side.

The barometer dropped sharply once these results were added in, falling from 43.9 to 10.3.

Given the greater number of stocks to choose from on the bearish list and the fact that most of the trade ideas of late have been bullish ones, I felt it prudent to find a bearish idea for today. Viacom Class B (Nasdaq: VIAB) appeared on the bearish list and the fundamentals are average. The EPS rating is slightly below average at 46 and the SMR rating is a C.

The stock has formed a downward trend over the last eight months and the trend shows up better on the weekly chart. The trend line connects the highs from last October, November, and April. The stock is just under the trend line currently and it is just below its 52-week moving average. I look for the trend line and the moving average to act as resistance.

Buy to open the July 30-strike puts on VIAB at $1.75 or better. These options expire on July 19. In order for these options to double the stock will need to drop to $26.50. The low in March was below $25, so the stock won’t have to break to a new low to reach our target. I suggest a target gain of 100% with a stop at $30.

— 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.