This Trade Targets a 100% Return in Less than Seven Weeks

Historically September is the worst month for stocks and on the first day of trading this year, the month lived up to its reputation. With new tariffs going in to effect on September 1 and more posturing between the U.S. and China, investors weren’t feeling very confident.

All four indices moved significantly lower on Tuesday with the Russell falling 1.51% as the hardest hit index. The Nasdaq dropped 1.11% and the Dow fell 1.08%. The S&P did manage to keep its loss to less than one percent, but still declined 0.69%.

Eight of the 10 main sectors fell on the day with the defensive sectors being the two sectors that managed to log gains.

The utilities sector gained 1.77% on the day and the consumer staples sector moved up 0.58%.

There were three sectors that fell more than 1.0% and they were led lower by the industrial sector which fell 1.36%.

The tech sector fell 1.22% and the financial sector dropped 1.15%.

My scans turned in a second straight negative result last night with 34 names on the bearish list and only four names on the bullish list.

The barometer dropped pretty hard once these results were added in to the equation, falling from 38.1 to 10.7.

After four straight bullish trade ideas, I have a bearish trade idea for you today. There were several stocks that stood out, but the combination of the chart and the fundamentals that stood out the most was on PDC Energy (Nasdaq: PDCE). The company scores above average with a 77 on the EPS rating scale, but it scores below average with a D on the SMR rating system.

The chart for PDC Energy is an interesting one as the low before the gap lower in May connects with the high from July to form an upper rail to a trend channel. The stock just hit this rail. The parallel lower rail connects the lows from May and August. We also see that the daily stochastic readings are in overbought territory and made a bearish crossover last night.

Buy to open the October 35-strike puts on PDCE at $4.70 or better. These options expire on October 18. In order for these options to double the stock will need to drop to $25.60. The stock bottomed down near $24 in early August and at $25.15 on August 23 so it won’t have to break below either of those levels to hit the target price. I suggest a target gain of 100% with a stop at $33.00.

— 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.