Monday saw all four of the main indices gain ground, but all four turned lower at the end of the day and closed off their highs. The Russell led the way with a gain of 0.63% and it was followed by the Nasdaq which moved up 0.62%. The Dow and the S&P turned in matching gains of 0.09%.
The sectors were evenly split once again. Of the five that moved higher, the communication services sector was the big winner with a gain of 1.16%. The energy sector turned in the second best performance by tacking on 0.80%.
[hana-code-insert name=’adsense-article’ /]On the down side, the materials sector suffered the worst loss at 0.95% and it was followed closely by the financial sector with a drop of 0.92%.The scans remained bearishly skewed on Monday night with 34 names on the bearish list and 10 on the bullish list.
The barometer continued to climb even as the nightly scans have remained in negative territory. Last night’s reading was -29.9, up from -37.8 on Friday.
There were a handful of stocks that caught my eye last night, one from the bullish list and four from the bearish list.
The one that seemed to make the most sense between the chart, the fundamentals, and the risk/reward relationship was a bearish play on GlaxoSmithKline (NYSE: GSK). The fundamentals aren’t terrible, but they aren’t great either. The EPS rating is a 59 and the SMR rating is a B.
A downward sloped trend channel has formed over the last couple of months and the stock just hit the upper rail—or at least the upper rail completed its formation from the recent high. The stock was in overbought territory based on the daily stochastic readings and they turned lower yesterday while completing a bearish crossover. The last couple of times we have seen that happen it has been a good time to be short Glaxo.
Buy to open the August 41-strike puts on GSK at $1.90 or better. These options expire on August 16. In order for these options to double the stock will need to drop to $37.20. That price would be below the lower rail at this time, but if it the stock falls slowly, the lower rail should get down to that level in a few weeks. I suggest a target gain of 100% with a stop at $40.40.
— Rick Pendergraft
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