There was a bit of a reversal in the trading action on Tuesday. The lagging index became the leader and the leader became the laggard. Three of the four indices finished with significant losses and the Nasdaq managed a small gain of 0.29%.
The Russell fell 1.94% and it was the worst performer on the day after leading the way for the two previous days. The Dow dropped 1.09% and the S&P lost 0.78%.
Nine of the 10 sectors fell on the day and the tech sector notched a gain of 0.47%.Like the Nasdaq, tech stocks had been lagging in the last few days.
The communication services sector only lost 0.25% and that was the second best performance.
The energy sector fell 3.76% as the worst performer and that followed the theme of leaders becoming laggards and vice versa.
The industrial sector dropped 2.49% and was one of four sectors that lost at least 2.0%.
My scans produced yet another big bearish result on Tuesday with 116 bearish signals and seven bullish signals. This is the fourth straight day where the bearish signals have reached triple digits.
The barometer didn’t change much as the consistency in the daily results have been incredible. The final reading for Tuesday was -122 after a reading of -121.4 on Monday.
With the vast majority of signals being bearish and with the barometer remaining so low, today’s trade idea is a bearish one. Kohls (NYSE: KSS) was on the bearish list and the company’s fundamental ratings are pretty bad. The EPS rating is 19 and the SMR grade is an E. The retailer has been struggling in recent years, even before the virus hit.
The daily chart shows a trend line connecting the highs from November and February, and now the stock hit the trend line this week before turning lower. There is also the possibility that an island-top is forming with the gap higher last Friday. A gap lower this morning would confirm the formation.
Buy to open the July 30-strike puts on KSS at $5.00 or better. These options expire on July 17. I suggest a target gain of 100% on the trade and that means the stock would need to drop down to $20.00. The stock was trading below the $20 level just a few weeks ago and it was down below $15 in April. I recommend a stop at $30.00.
— Rick Pendergraft
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