Stocks opened higher on Tuesday, but the gains disappeared after the ISM Manufacturing Index was released at 10:00. The report came in well below the consensus estimate and it was lower than the August reading. Most importantly, the reading was 47.8 and that is the second straight month the reading has been below 50. Readings below 50 indicate contraction while readings above 50 indicate expansion.
All four of the main indices got hit hard and all took losses over 1.0%. The Russell took the biggest loss at 1.92%. The other three experienced similar declines with the Dow falling 1.28%, the S&P fell 1.23%, and the Nasdaq declined 1.13%.
[hana-code-insert name=’adsense-article’ /]All 10 main sectors declined on the day, but the degree of the losses varied greatly.Four sectors dropped over 2.0% with the industrial sector taking the worst loss at 2.36%.
The materials sector fell 2.34%, the energy sector declined 2.33%, and the financial sector dropped 2.07%.
The utilities sector dropped the least at 0.28% and the consumer staples sector only fell by 0.33%.
My scans ended the run of positive readings, but it was close at the end of the day.
There were 25 names on the bearish list and 21 on the bullish list.
The barometer fell from 21.4 to 12.4 once we added these numbers in.
Even thought the lists were pretty even, the one setup that stood out the most was on Kimberly Clark (NYSE: KMB). The stock appeared on the bearish list and it scores slightly above average on the fundamentals with a 61 EPS rating and a B on the SMR rating system.
As you can see on the chart, the stock has had trouble moving above the $142.50 level. This area served as resistance on two occasions in August and early September and now it appears to be holding the stock back again. The stochastic readings are in overbought territory and they made a bearish crossover last night.
Buy to open the November 145-strike puts on KMB at $6.20 or better. These options expire on November 15. In order for these options to double the stock will need to drop to $132.60. The stock fell well below that price a few weeks ago, so it won’t need to reach a new low. I suggest a target gain of 100% with a stop at $143.50.
— Rick Pendergraft
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