This Trade Targets a 100% Return in 6 Weeks

Stocks bounced back from Tuesday’s losses with some solid gains on Wednesday. All four indices saw significant gains, but it was the Nasdaq that led the way with a gain of 1.30%. The S&P moved up 1.09% as the second best performer and the Dow tacked on 0.91% as the third best. The Russell lagged the other three a little, but it still managed a gain of 0.85%.

All 10 of the main sectors moved higher on the day and six moved up at least 1% or more. The communication services sector led the way with a gain of 1.94%. The tech sector gained 1.73% and that was the second best performance.

[hana-code-insert name=’adsense-article’ /]The worst gain on the day was the healthcare sector and it was only 0.02%.

Utilities only managed to move up 0.11% and that was the second worst performance on the day.

Despite the strong gains for the indices and sectors, my scans produced a third straight negative result.

There were 22 names on the bearish list and only three on the bullish side.

The barometer moved in to negative territory thanks to the negative results from the last three trading days.

The final reading was -9.7, down from 10.7 on Tuesday.

None of the stocks on the bullish list had decent fundamentals and that left me with the bearish list. There were only a few charts that caught my attention there and the one stock that stood out was Penn National Gaming (Nasdaq: PENN). The company scores a 16 on the EPS rating and a B on the SMR rating scale. Earnings declined by 23% in the most recent quarter.

We see that a downward sloped trend channel has formed over the last five or six months. The stock is nearing the upper rail at this time and it is overbought. The daily stochastic readings made a bearish crossover last night. The last few instances where the stochastics were in overbought territory and made a bearish crossover saw the stock fall rather sharply.

Buy to open the October 20-strike puts on PENN at $1.65 or better. These options expire on October 18. In order for these options to double the stock will need to drop to $16.70. That level is near the August low and above the lower rail. I suggest a target gain of 100% with a stop at $20.00.

— 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.