This Bullish Trade Targets a 75% Return by mid-September

Monday saw the selling that hit stocks on Thursday and Friday come to a halt as all four of the main indices posted gains. The Nasdaq led the way with a gain of 1.67% and the Russell jumped 1.16%.

The S&P posted a gain of 0.74% and the Dow moved up 0.43%. The Dow and the Russell spent a short period in the red in the early going while the S&P and Nasdaq were in positive territory from the get go.

Eight of the 10 sectors moved higher on Monday with two gaining more than 1.0%. The tech sector jumped 1.58% to lead the way and the materials sector tacked on 1.45%.

Gold moved to a new all-time high on Monday and that gave the materials sector a boost.

The utilities sector fell 1.21% and was the worst performer on the day. It was joined in negative territory by the financial sector which declined 0.82%.

Even with the majority of stocks moving higher yesterday, my scans remained negatively skewed. There were 44 bearish signals and 14 bullish signals on the day.

Despite the seventh straight negative reading from the scans, the barometer continued to move up from last week’s readings. The final tally last night was -40.6, up from -47.6.

Even though the bearish signals far outnumbered the bullish signals, there was one particular stock on the bullish list that jumped out at me – JD.com (Nasdaq: JD). The company scores an 82 on the EPS rating scale and it gets a B on the SMR grading system.

The stock has been trending higher with a trend channel defining the cycles within the overall trend. The stock just hit the lower rail of the channel and has now turned higher. The daily stochastic indicators are right at oversold levels, but they made a bullish crossover last night. A similar pattern developed at the beginning of May and the stock then rallied nearly 40%.

Buy to open the September 60-strike calls on JD at $6.00 or better. These options expire on September 18. I suggest a target gain of 75% and that means the stock will need to reach $70.50. The price level is above the recent high, but the upper rail of the channel is right at $70 now so it will be higher in the next week or so. I recommend a stop at $58.50.

— 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.