This Trade Targets a 50% Return by mid-May

For the first time since February 11 and 12, the S&P experienced two straight days of gains on Tuesday and Wednesday. Yesterday’s gains weren’t as strong as Tuesday’s and not all of the indices finished higher, but seeing two straight positive days for the S&P is a start.

The Nasdaq was the only one of the four indices to lose ground, falling 0.45% on the day. As for the other three, the Dow led the way with a gain of 2.39%, the Russell tacked on 1.26%, and the S&P moved up 1.15%.

Seven of the sectors moved higher while three moved lower.

The industrial sector was the top performer with a gain of 5.13%.

The energy sector turned in the second best performance with a gain of 3.91%.

The communication services sector was the worst performer with a loss of 1.54%.

The consumer staples fell 0.27% and the tech sector dropped 0.13% to round out the three sectors that lost ground.

My scans continued to produce strong positive results on Wednesday. There were 98 bullish signals and two bearish signals.

The barometer continued to climb with these results. The final reading last night was 92.2, up from 78.4 on Tuesday.

With seven of the last eight trade ideas being bullish ones, I have been paying particular attention to any bearish signals that I get. One of the two stocks with bearish signals from last night did catch my attention and it was Zscaler (Nasdaq: ZS). The fundamentals aren’t terrible, but they aren’t great either. The EPS rating is a 42 and the SMR rating is a B. Even with that, the chart jumped out at me.

The stock peaked at $66.50 back on February 20 before gapping lower the next day. In yesterday’s trading the stock peaked at $66.50 before pulling back rather sharply and closing below $60. This caused the stochastic readings to make a bearish crossover as they are in overbought territory. I look for the stock to move lower over the next few weeks.

Buy to open the May 60-strike puts on ZS at $8.00 or better. These options expire on May 15. With the volatile market and the high option premiums, I suggest a target gain of 50%. This means the option has to reach $12.00 and that means the stock needs to drop to $48.00. I also suggest a stop at $66.75.

— 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.