This Bullish Trade Targets a 75% Return in Seven Weeks

Stocks stretched their winning streak to three days with another big day on Thursday. Investors found confidence in the fact that the Senate passed the stimulus bill on Wednesday and it is now headed to the house. All four indices saw big gains on the day and all 10 sectors moved higher.

The Dow posted the biggest gain for the day at 6.38% and the Russell was right behind it with a gain of 6.3%. The S&P jumped 6.24% while the Nasdaq moved up 5.6%.

The utilities sector was the top performer with a move of 8.54%.

The healthcare sector jumped 6.64% and that was good enough for second best.

The smallest gain of the bunch was 4.15% and that was the consumer discretionary sector.

The materials sector gained 4.7% and those were the only two sectors that failed to reach a gain of 5%.

My scans produced another positive result last night and that stretched the streak of positive readings to 13 straight days.

There were 26 bullish signals last night and there weren’t any bearish signals.

The barometer slipped a little despite the positive reading. The final reading was 74.1 and that was down from 92.2 on Wednesday. The barometer has been in positive territory for 21 straight days now.

Today’s trade idea is a bullish one and it is on a stock that I have liked for a while. The company is ZTO Express (NYSE: ZTO) and it scores a 98 on the EPS rating system and it also gets an A on the SMR rating system. Even when the market fell, ZTO maintained its upward trend.

The daily chart shows how a trend line has formed over the last couple of months. The stock dropped down close to the trend line and the daily stochastic readings dropped down below the 30 level before making a bullish crossover last night. The last time the indicators did that was in late February and the stock rallied sharply after that.

Buy to open the May 25-strike calls on ZTO at $2.60 or better. These options expire on May 15. With the volatile market and the high option premiums, I suggest a target gain of 75%. The options will need to reach $4.55 and the stock will have to reach $29.55. I suggest a stop at $23.90.

— 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.