This Trade Targets a 75% Return in Eight Weeks

Thursday’s trading action saw stocks rise in the early going and all four of the indices were in positive territory with pretty solid gains. It was a little surprising with initial claims being nearly 4.5 million for the week. The gains didn’t last and two of the four indices would end up losing ground.

The Russell was the top performer with a gain of 1.04%, but it was well below the 2.58% gain the index saw at its peak. The Dow gained 0.17% as the other index in positive territory.

The S&P fell 0.05% after being up over 1.6% at its peak.

The Nasdaq dropped 0.01% on the day.

The main sectors were split right down the middle on Thursday with five moving higher and five moving lower.

The energy sector was by far the top performer with a gain of 3.23%.

No other sector gained over 1.0% and the industrial sector ended up being the second best performer with a gain of 0.79%.

The industrial sector was the worst performer on the day with a loss of 1.68% and the consumer staples sector fell 0.89% as the second worst.

My scans saw a significant drop in bearish signals, but remained tilted toward the bearish side. There were 18 bearish signals and five bullish signals.

The barometer moved up to -27.5 from -36.6 after adding these results in to the equation. The indicator has now been in negative territory for 10 straight days.

None of the stocks on the bullish list had very good fundamental ratings and that led me to another bearish trade idea for today. Biotech firm Invitae Corp. (NYSE: NVTA) appeared on the bearish list last night and it has poor fundamental ratings. The EPS rating is very low at 8 and the SMR rating is a D.

The chart shows how the stock has rallied off of its March low, but now faces resistance at its 50-day moving average. The stochastic indicators are in overbought territory and made a bearish crossover last night. We similar patterns at peaks in November, January, and February, and each of those were followed by declines in the stock. The one in January wasn’t as severe as the other two, but the stock did drop never the less.

Buy to open the June 17.50-strike puts on NVTA at $3.50 or better. These options expire on June 19. I suggest a target gain of 75%. This means the stock will need to drop to $11.35. I suggest a stop at $17.25.

— Rick Pendergraft

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