This Trade Could Double Your Money in About Five Weeks

Stocks were a little mixed on Tuesday with three of the four main indices moving higher and one moving lower. All four started out in positive territory, but the Dow ended with a loss of 0.48 points—not percent, but points.

The Russell led the way with a gain of 0.59% and it was followed by the S&P with a gain of 0.17%. The Nasdaq moved up 0.11%.

Seven of the main sectors moved higher on the day while three moved lower.

The energy sector was the biggest gainer with a move or 1.14% and it was followed by the consumer discretionary sector with a gain of 0.78%.

The consumer staples sector was the worst performer with a loss of 0.37% while the tech sector fell 0.32% as the second worst.

The communication services sector dropped 0.09% as the third group to finish in the red.

The scans remained bearish for a third straight day with 45 names on the bearish list and nine names on the bullish list.

The barometer moved further in to negative territory once these results were added in. The final reading was -29.1, down from -13.9.

Even though the barometer moved lower and the scans produced a greater number of bearish signals than bullish ones, today’s trade idea is a bullish one. Merck (NYSE: MRK) was on the bullish list and the company’s fundamental ratings are really good with an EPS rating of 86 and an SMR rating of A.

The daily stochastic indicators made a bullish crossover last night, but I thought the weekly chart did a better job of depicting the current setup for Merck. We see that the stock has been trending higher since last April and a trend channel has formed. The stock just hit the lower rail of the channel and appears ready to turn higher once again.

Buy to open the March 85-strike calls on MRK at $2.05 or better. These options expire on March 20. In order for these options to double the stock will need to reach $89.10. The stock was up near $92 on several occasions in December and January, so it won’t have to hit a new 52-week high to hit our target. I suggest a target gain of 100% with a stop at $84.50.

— 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.