Stocks saw some buying on Tuesday and all four indices saw solid gains, but not anywhere near enough to erase the losses from Monday. The Russell led the way with a gain of 6.67%. The Nasdaq jumped 6.23% and the S&P tacked on an even 6.0%. The Dow was the lone one of the four not to gain over 6%, but it still gained 5.2%.
All 10 of the main sectors moved higher on the day, but the utilities sector really jumped, gaining 12.79%. It was the only sector that saw double-digit percentage gains.
The consumer staples sector was the second best performer with a gain of 8.43% and that kind of tells us that investors are being cautious.The two most defensive sectors were the two biggest gainers on a day that saw big gains for the market as a whole.
The energy sector was the worst performer with a gain of only 0.68%.
The next smallest gain was 3.85% and that was from the consumer discretionary sector.
My scans were decidedly more bullish after the big gains. There were 171 names on the bullish list and not a single stock on the bearish list. The barometer jumped to 139.7 once these results were added in to the equation.
Looking through the stocks on last night’s bullish list, there was a stock that I have been watching for several days now. I knew the company had great fundamental indicators and I was waiting for it to appear on the bullish list, and it finally did last night. Alibaba Group (NYSE: BABA) is the subject of today’s trade idea and the company gets a 99 on the EPS rating system and an A on the SMR grading scale.
The weekly chart is the reason I have been watching the stock. It dropped below its 104-week moving average and below the lower rail of its trend channel on Monday, but rallied back above both on Tuesday. I look for the stock to rally sharply from here.
Buy to open the May 180-strike calls on BABA at $19.00 or better. These options expire on May 15. In order for these options to double the stock will need to reach $218.00. That level is well below the upper rail of the channel and it is below the high reached in January. I suggest a target gain of 100% with a stop at $174.00.
— Rick Pendergraft