This Trade Targets a 60% Plus Return in Two Months

Stocks jumped again on Wednesday and they did so out of the gate. All four indices opened significantly higher and held the gains throughout the day.

The Russell experienced the biggest jump at 3.0%. The Nasdaq was the second best performer with a gain of 2.08%. The S&P gained 1.67% and the Dow tacked on 1.52%.

All 10 sectors moved higher on the day and only two failed to gain at least 1.0%.

The healthcare sector inched up 0.12% and the utilities sector gained 0.55%.

The energy sector made the biggest move at 3.99%.

Communication services stocks gained 2.77% and financials gained 2.22%.

My scans produced five bullish signals and 26 bearish signals on the day.

The barometer fell from 35.5 to 12.1 once these results were added in to the equation.

There weren’t any stocks on the bullish list that I liked last night and there were only two that I liked on the bearish list. In the end I felt like a bearish play on HUYA Inc. (NYSE: HUYA) would give us the best odds for a successful trade. The company actually scores okay on the fundamental ratings with an EPS rating of 71 and an SMR rating of an A. But the chart is what got my attention.

We see on the chart that the stock has been trending lower since last September. A trend channel marks the various swings within the overall downward trend and the stock just but what looks to be the upper rail. It is also worth noting that the 10-day RSI and stochastic indicators are both in oversold territory. That has been a bad sign for the stock in the last few years.

Buy to open the July 20-strike puts on HUYA at $3.30 or better. These options expire on July 17. I suggest a target gain of 66%. In order to hit our target the stock will need to drop to $14.50 and that’s right where it bottomed earlier this month. I suggest a stop at $20.25.

— 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.