This Trade Targets a 100% Return in Five Weeks

Stocks resumed their rally on Thursday and all four of the main indices saw significant gains. The Russell led the way for a third straight day and this time the gain was 1.36%. The Nasdaq moved up 1.06% and was the second best performer on the day.

The Dow gained 0.92% and the S&P experienced the smallest gain of the four at 0.84%.

All 10 sectors moved higher on Thursday with the tech sector leading the way with a move of 1.34%.

The industrial sector came close to giving us a second sector with a gain of 1.0% or higher, but came up just short at 0.99%.

The smallest gain on the day came from the energy sector at 0.17%.

The second smallest move was the consumer staples sector and it was up 0.27%.

Because so many stocks are in overbought territory at this time, my scans produced another negative result. This time there were 28 names on the bearish list and 13 names on the bullish side.

The barometer slipped just a little, falling from -17.6 to -18.5.

Today’s trade idea is a bullish one and it is on the ProShares Ultra Bloomberg Crude Oil ETF (NYSE: UCO). The fund was on the bullish list on Thursday night and it got a bullish signal from Tickeron’s Trend Prediction Engine. The signal showed a confidence level of 88% and 92% of past signals have been successful.

We see on the chart that the fund has been moving higher since early October. By connecting the lows from October and early December, we get an upwardly sloped trend line. UCO dropped below the trend line on Wednesday, but didn’t close below it. The fund also formed a reversal pattern with Wednesday’s candle. The daily stochastic readings are in oversold territory and made a bullish crossover last night.

Buy to open the February 18-strike calls on UCO at $1.70 or better. These options expire on February 21. In order for these options to double the fund will need to reach $21.40. The fund peaked near $22 earlier this month and I look for it to challenge that level once again. I suggest a target gain of at least 100% with a stop at $18.05.

— 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.