There has been an interesting pattern to the last three days trading results, at least in terms of the index results. On Tuesday three out of the four gained ground with the Dow losing ground. On Wednesday three of the four moved higher with the Russell losing ground. Yesterday, three of the four moved higher while the Nasdaq fell. If the S&P falls today and the other three rise, it will be one of the weirdest things I have seen in my 20 years of writing about the market.
The Dow led the way yesterday with a gain of 0.57%. The Russell moved up 0.35% and the S&P tacked on 0.17%. The Nasdaq fell 0.34%.Seven of the 10 main sectors moved higher yesterday with the financial sector leading the way with a gain of 1.69%.
The healthcare sector moved up 0.79% on the day and that was good enough for the second best performance.
After leading the way for two straight days, the communication services sector was the worst performer on Thursday. The sector fell 1.20%.
The consumer discretionary sector fell 0.54% and that was the second worst performance on the day.
My scans turned negative last night with 63 bearish signals and 15 bullish signals. The negative reading snapped a streak of three straight nights of positive readings.
The barometer fell back in to negative territory with a reading of -11.1, falling from 12.6 on Wednesday.
With the abundance of bearish signals and after four straight bullish trade ideas, today’s trade is a bearish one. We have seen a number of bad news stories out of the airlines industry recently and Southwest Airlines (NYSE: LUV) appeared on my bearish list last night. The company scores an EPS rating of only 7 and the SMR rating is a C.
The stock moved sharply lower from February through early May and then rebounded. It fell again and has rebounded in August. One thing that caught my eye about yesterday was the candlestick formation. It is called a shooting star pattern where the stock opened modestly higher, rose considerably higher throughout the day, but then fell back down to close near the opening price. This is considered a bearish formation as it means that bears took control late in the day after bulls were in control in first part of the day.
Buy to open the October 40-strike puts on LUV at $4.95 or better. These options expire on October 16. I suggest a target gain of 75% and that means the stock will need to drop to $31.33. The stock was below the $31 level at the end of July, so it won’t have to break that low to hit our target.
— Rick Pendergraft
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