After the U.S. missile strike in Iraq, stocks were set up to fall on Friday and that is just what they did as oil, gold, and bonds spiked. All four of the main stock indices fell on the day.
The Dow suffered the biggest loss at 0.81% and it was followed by the Nasdaq with a drop of 0.79%. The S&P fell 0.71% and the Russell only declined by 0.46%. The loss on the Russell was much worse in the morning session before it trended higher throughout the day.
Nine of the 10 sectors declined on Friday with the utilities sector gaining 0.20% as the only one in the black.The materials sector fell 1.61% and that was the worst performance of the day.
The tech sector dropped 1.12% and the financial sector fell 1.06%.
These were the only three sectors that dropped more than 1.0%.
The scan results from Friday night were a little surprising.
There were 15 names on the bearish list and 12 on the bullish list. I expected a much larger tally from the bearish side.
The barometer continued to climb back towards positive territory, moving from -20.1 to -10.7 on Friday.
Today’s trade idea is a bearish one and it is on the iShares MSCI Hong Kong ETF (NYSE: EWH). The fund was on the bearish list and there is a pattern in the chart that points to downward move. It seems odd to be recommending a put on the EWH after recommending a call on the Japan ETF on Friday, but that is what the charts are suggesting.
What got my attention on the chart for the EWH were the tops in September and November. The fund’s stochastic readings were in overbought territory and it gapped higher. After the gap higher and the overbought readings from the stochastics and a down day followed, it started a downward trend.
Buy to open the February 26-strike puts on EWH at $1.60 or better. These options expire on February 21. In order for these options to double the fund will need to fall to $22.80. The low in October was well below the level we need it to reach for these options to double. I suggest a target gain of 100% with a stop at $24.95.
— Rick Pendergraft