This Bullish Trade Targets a 100% Return by mid-October

Stocks opened higher on Friday, but saw some early selling pressure and that took the indices in to negative territory in the morning session. They would rally back, but they waffled back and forth for most of the afternoon. In the end, two would finish higher and two would finish lower.

The Dow led the way with a gain of 0.16% and the S&P joined it in positive territory with a gain of 0.06%. The Nasdaq and Russell would finish with identical 0.13% losses.

The sector action saw five sectors move higher, four moved lower, and the energy sector was unchanged.

The materials sector was the top performer with a gain of 0.64% and the industrial sector moved up 0.44% for second place.

The consumer discretionary sector suffered the worst loss at 0.59%.

The communication services sector dropped 0.14% as the second worst performer.

My scans were somewhat muted in terms of the number of stocks on each list.

There were only six on the bullish list and 10 on the bearish list.

Once these results were added in to the equation, the barometer fell from 54.9 to 38.1.

Despite the small number of stocks to choose from, there was one particular stock that jumped out from the lists. Splunk Inc. (Nasdaq: SPLK) was on the bullish list and it has strong fundamental ratings. The EPS rating is a 99 and the SMR rating is an A.

The stock found support in the $110 range back at the end of May and beginning of June. Now the stock has dropped back down to that same level. The 10-day RSI is in oversold territory and the daily stochastic readings are as well. The stochastic readings did make a bullish crossover on Friday and I expect the stock to rally from here.

Buy to open the October 110-strike calls on SPLK at $7.50 or better. These options expire on October 18. In order for these options to double the stock will need to reach $125. There aren’t really any resistance levels between the current price and the $125 area and that is a good thing. I suggest a target gain of 100% with a stop at $109.00.

— 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.