Trade This Stock’s Drop for a 75% Return in About 6 Weeks

Friday was a mixed day for stocks with two indices moving higher and two moving lower. All four came off their morning lows and rallied in the afternoon, but only the Nasdaq and S&P made it in to positive territory. The Nasdaq was the top performer with a gain of 1.29% and the S&P moved up 0.48%.

The Russell fell 0.47% as the worst performing index and the Dow dropped 0.07%.

The sector performances showed seven moving higher and three moving lower.

The tech sector was the top performer with a gain of 1.26% and it was followed by the healthcare sector with a gain of 1.21%.

Those were the only two sectors that gained over 1.0%.

The financial sector was the worst performer with a loss of 1.14% and it was followed by the industrial sector with a drop of 0.62%.

The energy sector fell 0.46% as the third one to finish in the red.

My scans turned decidedly more bearish on Friday with 141 bearish signals and 14 bullish signals.

The barometer dropped to -84.5 once these results were added in to the equation and that is the lowest reading since May 1.

After going back and forth with last week’s trade ideas, I have a second straight bearish trade idea for you today. Urban Outfitters (Nasdaq: URBN) appeared on the bearish list on Friday and the company’s fundamental ratings are pretty bad. The EPS rating is a 13 and the SMR rating is a D.

Since the big selloff in February and March, the stock has had trouble moving back above the $19.20 area. This area has halted three different short-term rallies and did so again last week. In each previous case the stock retreated to the $15 area, but I look for a more violent decline this time around.

Buy to open the July 19-strike puts on URBN at $2.85 or better. These options expire on July 17. I suggest a target gain of 75% which means the stock will need to drop to $14.00 to hit our target. The stock was below $14 in April and March, so it won’t have to break to a new low. I suggest a stop at $19.20.

— Rick Pendergraft

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.