Stocks got off to a bit of a poor start this week with three of the four indices losing ground on Monday. The Dow managed a gain of 0.03%, but even that was well off its high. The Russell suffered the biggest decline at 1.26% and it was followed by the Nasdaq with a loss of 0.32%. The S&P fell 0.17%.
The 10 main sectors were evenly split on the day with five moving higher and five moving lower. The losses were bigger than the gains for the most part and the worst loss was from the energy sector at 0.9%. The consumer discretionary sector fell 0.54% as the second worst performer while the healthcare sector was close behind at 0.52%.
[hana-code-insert name=’adsense-article’ /]The biggest gain on the day came from the materials sector at 0.38% and it was followed by the consumer staples sector which moved up 0.26%.Because of the number of stocks in overbought territory and two days of losses, my scans turned decidedly bearish on Monday.
There were 148 bearish signals and only two bullish signals.
The barometer dropped sharply to -79.4 and that is the lowest reading since February 7.
Needless to say there wasn’t much of a chance for a bullish trade idea today with only two stocks to choose from, so here is another bearish trade idea.
The Direxion Daily Energy Bull 3X Shares (NYSE: ERX) appeared on the bearish list and of course there aren’t any fundamental ratings for an ETF, but there was a bearish signal from Tickeron’s Trend Prediction engine to go along with the bearish signal I got. Out of the last 100 predictions from the tool, all 100 have been successful.
The daily chart shows how the ETF has rallied since the beginning of June, but now it is hitting resistance at its 50-day moving average. The trend line acted as support in February and March before it was breached in late April. The ERX is tremendously overbought based on the daily stochastic readings, but the indicators made a bearish crossover yesterday.
Buy to open the August 20-strike puts on ERX at $2.20 or better. These options expire on August 16. In order for these options to double the fund needs to drop to $15.60. The low in May was $15.50 so it won’t have to break to a new low. I suggest a target gain of 100% with a stop at $20.25.
— Rick Pendergraft
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