Trade This Stock’s Drop for 100% Returns in Five Weeks

Tuesday saw stocks spend most of the day in negative territory and then rally in the closing minutes to trim losses and in the case of the Dow and S&P, they moved in to positive territory. The Russell was the exception on the day as it spent most of the day in positive territory and finished with a gain of 1.23%.

The Dow finished with a gain of 0.28% and that was the second best performance of the bunch. The S&P moved up 0.03% on the day while the Nasdaq was the only index that didn’t make it back to positive territory and finished with a loss of 0.04%.

Seven of the 10 sectors moved higher on the day with the energy sector leading the way with a gain of 1.18%.

The materials sector moved up 1.02% and was the only other one to gain over 1.0%.

The consumer staples sector fell 0.64% and that was the worst performance on the day.

The tech sector dropped 0.51% and the consumer discretionary sector lost 0.40% as the third one to lose ground.

My scans turned a little more negative last night with 59 names on the bearish list and seven on the bullish list.

This is the biggest negative reading in this stretch of seven straight days of bearish results.

The barometer dropped from -24.3 to -35.6 once these results were added in to the equation.

I hate to make yet another bearish trade suggestion, but those are the readings I keep getting. Today’s trade idea makes the fifth bearish idea out of the last six and it is yet another one on an energy company. Today it is Apache (NYSE: APA) that is the subject company and it scores a 7 on the EPS rating and a C on the SMR rating.

The daily chart shows a downward sloped trend channel forming over the last four months and the stock just hit the upper rail of the channel. The upper rail is just above the 50-day moving average. The daily stochastic readings are in overbought territory and just made a bearish crossover last night.

Buy to open the October 25-strike puts on APA at $2.81 or better. These options expire on October 18. In order for these options to double the stock will need to drop to $19.38. The low in August was $19.44 so it will have to break that low, but the lower rail will be well below that price in a month. I suggest a target gain of 100% with a stop at $24.60.

— 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.