This Trade Targets a 75% Return in Two Months

Stocks got hit with some major selling as renewed concerns about the COVID-19 virus hit investors. New cases in Florida and California hit records in the last few days and that seemed to spook investors.

The Russell took the worst hit with a loss of 3.45%. The Dow fell 2.72% and the S&P dropped 2.59%. The Nasdaq took the smallest loss of the four at 2.19%.

All 10 sectors declined on the day with varying degrees of losses.

The energy sector was the worst performer with a drop of 5.55%.

Financials were the second worst performer with a drop of 3.53% and the industrial sector fell 3.48%.

Those were the only three sectors that dropped over 3.0%.

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The utilities sector took the smallest loss at 0.91% and the consumer staples sector fell 1.68%. Those were the only two groups that fell less than 2.0%.

My scans remained bearish with 44 signals from that side and 16 bullish signals. That makes five straight days of negatively skewed results.

The barometer fell to -24.5 after a reading of -22.2 on Tuesday.

Even though there were a number of stocks on each list, there weren’t that money trade setups that I liked. The one I liked most was on Incyte (Nasdaq: INCY). The biotech firm appeared on the bearish list and its fundamental ratings are mixed. The EPS rating is 14 and the SMR rating is a B.

Incyte was overbought a few days ago and the 10-day RSI has fallen below the 70 level. The stochastic indicators are still in overbought territory, but the indicators did make a bearish crossover last night. Similar turns in early June and in February preceded declines in the stock.

Buy to open the August 105-strike puts on INCY at $8.00 or better. These options expire on August 21. I suggest a target gain of 75% for this trade and that means the stock will need to drop to $91.00. The stock was down at $90 earlier this month. I recommend a stop at $108.00.

— 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.