Thursday saw all four indices open lower and then rally throughout the day. Initial jobless claims were worse than expected and that may have created the negative tone. By the end of the day three of the four indices posted gains with only the Russell closing lower, a loss of 0.49%.
The Nasdaq was the first of the indices to move in to positive territory and it ended with the biggest gain at 1.06%. The S&P moved up 0.32% and the Dow posted a gain of 0.17%.
The sector performance was rather odd given the index performances.Eight of the 10 sectors finished lower on Thursday with only the tech and communication services sectors finishing higher.
The tech sector jumped 1.33% and communication services gained 1.24%.
The energy sector suffered the worst loss for a third straight day.
Yesterday’s decline was 2.16% and that was by far the worst performance.
Financials dropped 0.94% for the second worst result.
My scans continued to shift toward a more negative tone with 48 bearish signals and eight bullish signals.
The barometer fell a little further with a reading of -31.7, down from -21.4 on Wednesday night.
With the negative skew for a third straight night from the scans, today’s trade idea is a third straight bearish one. Avaya Holdings (NYSE: AVYA) was on the bearish list and the company’s fundamental ratings are well below average. The EPS rating is a 31 and the SMR rating is an E.
The chart for Avaya is an interesting one. It gapped higher on August 10 after the company reported earnings. The rally continued for a few more days and then we saw three straight days where the stock opened and closed between $16.48 and $16.50. With the stock moving lower yesterday, I view it as a signal that momentum has shifted to the bearish side.
Buy to open the October 17.50-strike puts on AVYA at $2.20 or better. These options expire on October 16. I suggest a target gain of 75% and that means the stock needs to drop to $13.65. Falling to that price would fill the gap created after earnings. I recommend a stop at $17.10.
— Rick Pendergraft
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