The rally in stocks stalled on Tuesday with three of the four main indices finishing lower. All four were in positive territory at the beginning of the day, but only the Russell was able to hold on to its gain. The final result for the small-cap index was a move of 1.26%.
Of the three that lost ground, the Nasdaq was the first index to move in to the red and it ended with the worst loss at 1.40%. The S&P fell 0.52% after falling in the last half hour and the Dow dropped 0.13% after some late selling as well.
The sector performances were rather odd given the results from the indices.Seven of the 10 main sectors moved higher while only three fell.
The energy sector was the top performer with a gain of 2.15% and the materials sector jumped 1.86% as the second best performer.
Healthcare stocks took the biggest loss at 2.02% while the communication services sector fell 1.83%.
The tech sector was the third sector that lost ground and it dropped 1.33%.
My scans turned negative on Tuesday after two straight positive results. There were 36 names on the bearish list and 17 bullish signals.
The barometer was ready to move in to positive territory, but the results from last night kept that from happening. The final reading was -6.5 after a reading of -1.8 on Monday. The indicator has been in negative territory for 13 straight days.
After three bullish trade ideas in the last four trading days, today’s trade idea is a bearish one. Sempra Energy (NYSE: SRE) appeared on the bearish list last night and the company’s fundamental ratings are mixed with an EPS rating of 69 and an SMR rating of a C.
What we see on the chart is that the stock moved higher on the open and then fell rather sharply throughout the day. The pattern that formed is called a bearish engulfing pattern because the body of Tuesday’s candle engulfs the body from Monday. This indicates a potential shift in the momentum. We also see that the stochastic indicators made a bearish crossover.
Buy to open the June 130-strike puts on SRE at $10.00 or better. These options expire on June 19. I suggest a target gain of 75% for this trade and that means the stock will need to drop to $112.50. The stock will need to drop below the mid-April lows to reach our target, but it was trading below $100 in March. I suggest a stop at $132.50.
— Rick Pendergraft
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