For the most part stocks moved higher on Thursday with three of the four main indices moving higher. The Nasdaq was the top performer with a gain of 0.78% and the gain grew in to the close. The S&P tacked on 0.51% and the Dow moved up 0.37%. The Russell fell 0.09% and it closed near its low of the day.
Nine of the 10 main sectors moved higher on the day. The consumer discretionary sector was the top performer with a gain of 1.2% and the tech sector moved up 0.76% for second place. The communication services sector was close behind with a gain of 0.73%.
[hana-code-insert name=’adsense-article’ /]The healthcare sector dropped 0.14% as the only sector in the red on the day.The utilities sector inched up 0.09% and that was the second worst performance.
My scans remained decidedly bearish on Thursday with 50 names on the bearish list and not a single stock or ETF on the bullish list.
The barometer changed little, falling from -54.3 to -55.5.
Obviously with no stocks to choose from on the bullish side, today’s trade idea comes from the bearish list and it is one we have been successful with before.
I have suggested put options on American Airlines (Nasdaq: AAL) on several occasions now and we have been successful with them more times than not. The company’s fundamental ratings aren’t bad with a 62 EPS rating and a B on the SMR rating system.
Even though the fundamentals aren’t that bad, the trend in the stock is to the downside. We see that a trend line connects the highs from July and November and now the stock is hitting that trend line. While this represents what has been going on for the last six months, the truth is the stock has been trending lower for almost two years now.
Buy to open the February 31-strike puts on AAL at $2.35 or better. These options expire on February 21. In order for these options to double the stock will need to fall to $26.30. The stock fell below the $25 level in both August and September so it won’t have to break to a new 52-week low to hit our target. I suggest a target gain of 100% with a stop at $30.50.
— Rick Pendergraft
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