This Bullish Trade Target a 100% Return in Five Weeks

Stocks moved higher again on Wednesday and all four of the main indices saw solid gains on the day. The Dow led the way with a gain of 0.94% and it was followed by the Nasdaq with a gain of 0.90%.

The Russell notched a gain of 0.71% and the S&P moved up 0.65% to round out the results.

Nine of the 10 main sectors moved higher on the day with only the consumer staples sector failing to gain ground. The sector only lost 0.05%, but it was still the only one in the red.

The energy sector led the way again with a gain of 1.34%.

The communication services sector moved up 1.3% as the second best performer and the tech sector (1.08%) and consumer discretionary sector (1.02%) gave us four sectors with gains over 1.0%.

My scans changed course a little and turned a positive result for the first time in four days.

There were 31 names on the bullish list and 17 on the bearish side.

The barometer jumped considerably on Wednesday, but it remained in negative territory with a reading of -14.2.

Today’s trade idea is another bullish one and this time the subject company is Stoneco (Nasdaq: STNE). The company scores an 84 on the EPS rating system and it gets an A in the SMR grading scale.

Looking at the daily chart for Stoneco we see that the stock has been trending higher since last June. A trend channel has formed over the last four months and the stock just bounced off of the lower rail of the channel. We also see that the daily stochastic indicators are in oversold territory for the first time since August and they made a bullish crossover last night.

Buy to open the March 40-strike calls on STNE at $3.60 or better. These options expire on March 20. In order for these options to double the stock will need to reach $47.20. The target is above the high from earlier this month, but the upper rail should be above the $47.20 area in a week or so. I suggest a target gain of 100% with a stop at $39.25.

— 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.