This Trade Targets a 100% Return in Ten Weeks

Friday brought some massive selling to the markets as the fears about the coronavirus continued to grow. All four of the main indices fell and all four saw substantial losses.

The Dow took the worst hit on Friday with a drop of 2.09% and it was followed closely by the Russell with a decline of 2.07%. The S&P dropped 1.77% on the day and the Nasdaq lost 1.59%.

Nine of the 10 sectors fell on Friday with the consumer discretionary sector gaining 0.26% as the only one in the black for the day.

On the down side, six sectors fell at 2.0%.

The worst of them all was the energy sector with a drop of 3.12%.

The tech sector fell 2.74% and that was the second worst loss.

Believe it or not, my scans didn’t produce many results on either side Friday night.

There were seven names on the bullish list and only 10 on the bearish side.

The barometer fell quite a bit after the huge positive skew on Thursday. The final reading on Friday was 44.8, down from 64.6 the night before.

With so few stocks to choose from, I wasn’t able to pick a stock from either the bullish or the bearish list. However, I found a stock on the weekly bearish scan that fit the profile of what we look for. The stock is Nutanix (Nasdaq: NTNX) and the company scores a 1 on its EPS rating and an E on the SMR rating system.

The weekly chart shows how the stock has been trending lower over the last few years. A trend line connects the highs from August ’18 and February ’19. The stock just hit the trend line before falling this past week. I am looking for the downward to continue over the coming months.

Buy to open the April 32.50-strike puts on NTNX at $3.60 or better. These options expire on April 17. In order for these options to double the stock will need to drop to $25.30. The 52-week low is all the way down below the $18 level so it won’t have to break to a new low. I suggest a target gain of 100% with a stop at $34.00.

— 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.