The pattern we saw last week didn’t hold up on Friday as stocks dropped again, but they did close near the highs of the day. The February employment report was much stronger than expected, but that wasn’t enough to overcome the ongoing concerns regarding the corona virus. As I write this update on Sunday night, futures are pointing to another big gap lower today.
Looking at the final numbers from Friday we see that the Russell took the worst loss at 2.0% while the Nasdaq was close behind with a drop of 1.86%. The S&P fell 1.71% and the Dow was the only one of the indices to keep its loss to less than 1.0% with a decline of 0.98%.
All 10 main sectors fell again on Friday, but the percentages were vastly different.The energy sector got crushed again and ended with a loss of 5.62%.
The second worst loss was the financial sector at 3.4%.
The healthcare sector experienced the smallest loss at 0.53% and the second smallest loss was by the consumer staples sector which fell 0.79%.
Looking at the weekly numbers for last week, five sectors moved higher and five moved lower.
The split performance told you everything you needed to know about how investors were looking at the market. Utilities led the way last week while consumer staples and healthcare finished in second and third place. These three sectors are considered the most defensive stocks of the bunch. Energy and financials were the worst performers on the week.
My scans continued to produce fewer signals than we are used to with 16 names on the bullish list and six on the bearish side.
The barometer finished with a reading of 8.1 after a reading of 25.7 on Thursday.
I was flying a little bit blind as I tried to select today’s trade idea. I was experiencing issues with Investor’s Business Daily and couldn’t get the EPS ratings and the SMR ratings that I usually include in my analysis. Instead, today’s trade idea is based solely on the technical factors. The trade idea is a bearish one and the subject is B&G Foods (NYSE: BGS). The stock appeared on the bearish scan and I can tell you that the company’s ROE, profit margin, and sales growth are all below average which means the SMR rating would be average at best.
The chart jumped out at me immediately as I could see the trend channel before I even started drawing it. The highs connect with the gap lower from last April and the stock is right up against that upper rail. The daily stochastic indicators are in overbought territory and made a bearish crossover on Friday.
Buy to open the April 17.50-strike puts on BGS at $2.30 or better. These options expire on April 17. In order for these options to double the stock will need to drop to $12.90. The low in February was $12.70 so it won’t have to break to a new low to hit our target. I suggest a target gain of 100% with a stop at $17.20.
— Rick Pendergraft
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