This Trade Targets a 100% Return in About Five Weeks

Stocks soared on Tuesday after President Trump announced that some tariffs on Chinese goods would be suspended until December. The indices had opened down slightly when the announcement came out, but they took off after that.

The Nasdaq had the biggest jump with a gain of 1.95%. The S&P and Dow had similar gains at 1.48% and 1.44%, respectively. The Russell lagged the others a little, but still logged a gain of 1.09%.

[hana-code-insert name=’adsense-article’ /]All 10 of the main sectors gained ground on the day, but the range was rather wide.

The utilities sector had the smallest gain at 0.08%.

The only other sector that failed to gain at least one percent was the energy sector and it moved up 0.89%.

The tech sector logged the biggest gain at 2.48%, but it was the only one to gain over two percent.

The second best performance belonged to the consumer discretionary sector with a gain of 1.66%.

Despite the big gains on Tuesday, my scans turned in a second straight negative result. There were 37 names on the bearish list and only three names on the bullish side.

The results were negative enough to cause the barometer to fall in to negative territory for the first time in six days. The final reading on the day was -7.7, down from 31.7 on Monday.

I didn’t like the chart setups for any of the stocks on the bullish list, despite some decent fundamental readings. There were a few stocks that stood out on the bearish list, at least on the charts. But the one stock that stood out the most was Parsley Energy (NYSE: PE). The fundamentals aren’t terrible with a 63 EPS rating and a B on the SMR rating. The company saw earnings decline in the most recent quarterly report and they are expected to decline by 3% for the year.

The chart shows a downward sloped trend channel that has defined the different cycles within the overall trend. The stock isn’t up to the upper rail, but it is within striking distance of its 50-day moving average and that is yet another trend line the stock has had trouble crossing.

Buy to open the September 17.50-strike puts on PE at $1.70 or better. These options expire on September 20. In order for these options to double the stock will need to drop to $14.10. The lower rail of the channel is in the vicinity of that price currently and will be moving lower in the days ahead. I suggest a target gain of 100% with a stop at $17.30.

— 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.