This Trade Targets a 100% Return in Two Months

Stocks got pummeled yet again on Wednesday with all four of the major indices taking major losses. I took note of something I thought was rather interesting yesterday—the S&P hasn’t moved higher for two straight days since February 11 and 12. With yesterday’s losses we can now say we have gone over a month since the index moved up for two straight days.

Looking at the final numbers, the Russell took the worst loss at 6.41% and the Dow was second with a drop of 5.86%. The S&P fell 4.89% and the Nasdaq had the smallest loss at a whopping 4.7%.

All 10 sectors moved lower on the day with five of the sectors losing over 5%.

The worst of the bunch was the industrial sector which fell 5.87%.

The second worst loss was for the consumer discretionary sector which dropped 5.47%.

The healthcare sector was the only one of the 10 that didn’t lose at least 4%.

The sector fell 3.82%.

My scans turned in another positive result last night as so many stocks have become incredibly oversold and we are seeing bullish signals. There were 76 names on the bullish list and five on the bearish list.

The barometer continued to rise, jumping from 45.1 to 61.8 once these results were added in to the equation.

Once again I had a hard time finding a stock where I liked the trade setup from either the bullish list or the bearish one. Once again I turned to my weekly charts for today’s trade idea. The company is Global Telecom & Technology (NYSE: GTT) and it scores a 30 on the EPS rating scale and a D on the SMR grading system.

While it was the weekly chart that caught my attention, when I looked at the daily chart, something stood out to me. The stock should see its 10-day moving average cross bearishly below its 50-day today. The last time this happened was back in May of last year and the stock’s decline accelerated from there.

Buy to open the May 12.50-strike puts on GTT at $4.40 or better. These options expire on May 15. In order for these options to double the stock will need to drop to $3.70. Because there is support in the $5 range, I suggest a target gain of 50% on this trade idea. I would also suggest a stop at $13.00.

— 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.