The winning streaks for the S&P and Nasdaq came to a screeching halt yesterday as stocks saw some selling pressure for the first time in over a week.
All four indices experienced pretty significant losses with the Russell taking the worst hit at 1.98%. The Dow fell 1.51% and the S&P fell 1.08%. The Nasdaq was the only index that kept its loss under 1.0% at 0.86%.
Eight of the 10 main sectors lost ground on the day and energy stocks took the worst hit. The energy sector fell 3.18% and it was followed by the financial sector with a loss of 2.01%. Two other sectors lost more than 1.0%, consumer discretionary and industrials.
The consumer staples sector was the top performer with a gain of 0.89% and it was joined in positive territory by the materials sector which gained 0.02%.My scans continued to shift to a more negative skew with 73 bearish signals and only one bullish signal on Tuesday.
The barometer dropped sharply once these results were added in to the calculation. The final reading on Tuesday was -39.8, down from -0.9.
With the barometer turning more negative, I felt like another bearish trade idea was warranted, plus there was only one bullish signal. Unfortunately many of the stocks on the bearish list have really good fundamental readings. That is the case for Baxter International (NYSE: BAX) with an EPS rating of 96 and an SMR rating of an A, but I got a bearish signal and the chart shows a downward trend.
Looking at the chart we see that the highs from April, June, and this week all connect to form a downward sloped trend line. The stochastic indicators were in overbought territory and made a bearish crossover last night. The tops in April and June both formed a similar pattern and then saw the stock drop over 10.5% both times. A similar drop this time would take the stock down below $79.50.
Buy to open the August 87.50-strike puts on BAX at $4.80 or better. These options expire on August 21. I suggest a target gain of 75%. To hit our target the stock will need to drop to $79.10. That is a drop of 10.6% from the recent high. I recommend a stop at $89.00.
— Rick Pendergraft
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