This Trade Targets a 100% Return in Two Months

Stocks bounced back on Wednesday and all four of the main indices finished in the black. The gains grew as the day went on and for three of the four they had to erase some early losses.

The Russell led the way lower on Tuesday and it led the way higher yesterday. The small-cap index moved up 1.11% on the day. The Nasdaq had the second best gain at 1.05%. The Dow and the S&P lagged the other two, but they gained 0.61% and 0.62%, respectively.

Eight of the 10 sectors moved higher on Wednesday, but it wasn’t a complete mirror image. The two sectors that moved lower were the utilities sector (-0.08%) and healthcare (-0.47%). Utilities and consumer staples were the only two winning sectors on Tuesday.

[hana-code-insert name=’adsense-article’ /]The tech sector led the way higher with a gain of 1.18% and the communication services sector was second best at 1.13%.

These were the only two sectors that gained over 1.0% on the day.

For the first time in 17 trading days, my scans turned in a positive result.

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There were 20 names on the bullish list and seven on the bearish list.

The barometer jumped from -19.6 to -7.1 once these results were added in to the equation.

This is the highest reading for the barometer in three weeks.

There were three stocks on the bullish list that got my attention and none of the setups on the bearish list stood out. Therefore today’s trade idea is a bullish one on Akamai Technologies (Nasdaq: AKAM). The combination of fundamentals, chart setup, and option pricing made the most sense. The company gets a 92 on the EPS rating scale and an A on the SMR rating system.

The daily chart shows an upwardly sloped trend channel helping to steer the stock higher over the last seven months or so. The lower rail of the channel is very near the 50-day moving average and the stock hit the lower rail this week. I look for the stock to bounce again and to reach a new high.

Buy to open the November 90-strike calls on AKAM at $4.80 or better. These options expire on November 15. In order for these options to double the stock will need to reach $99.60. The stock will need to reach a new high to hit our target, but the move needed is similar to the move we saw from mid-August through early September. I suggest a target gain of 100% with a stop at $87.50.

— 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.