Friday closed out an odd week where we saw several reversal days and it was a quadruple-witching day where options, futures, options on futures, and single stock futures all expired. Such days have a history of creating more volatility.
In the case of Friday we saw all four indices open solidly higher, but all of them would turn lower and were in the read toward midday. Three of the four would finish with losses while the Nasdaq eked out a gain of 0.03%.
The other three indices saw significant losses by the end of the day and the worst one of the bunch was the Dow with a drop of 0.80%.The Russell fell 0.59% and the S&P declined 0.56%.
Nine of the 10 main sectors fell on Friday with only the healthcare sector logging a gain.
The sector posted a gain of 0.96%.
The utilities sector was the worst performer on the day with a drop of 2.81%.
The energy sector fell 1.52% and the industrial sector dropped 1.23%. Those were the only other sectors that lost more than 1.0%.
My scans continued to shift toward a more bearish position on Friday with 46 bearish signals and only five names on the bullish list.
The barometer dropped abruptly in to negative territory with the last two results being skewed to the bearish side. The final reading on Friday was -0.8, down from 30.2 on Thursday.
Because of the way stocks traded on Friday, opening higher and then closing lower, there were a number of bearish engulfing patterns that formed. One such pattern was on Dick’s Sporting Goods (NYSE: DKS). In addition to the pattern, the company doesn’t score all that well on its fundamental ratings with an EPS rating of 42 and an SMR grade of a C.
While the bearish engulfing pattern got my attention, a closer look brought a couple of other things to my attention. First, Dick’s gapped higher in May and it hasn’t dropped back down to that level yet. We also see that the stock has been in overbought territory for quite a while now and the rally could be running out of gas.
Buy to open the August 41-strike puts on DKS at $4.60 or better. These options expire on August 21. I suggest a target gain of 100% on this trade. In order to reach out target the stock will need to drop to $31.80 and that is right around the gap the stock needs to fill. I recommend a stop at $42.00.
— Rick Pendergraft
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