Trade This Stock’s Drop for 75% Returns in 10 Weeks

Stocks saw a second straight day of selling pressure on Friday and all four of the main indices fell once again. The Nasdaq was the worst performer with a drop of 1.27% and it fell 3.27% on the week.

The S&P fell 0.81% on Friday and it was followed by the Russell with a drop of 0.61%. The Dow declined 0.56% on Friday and it also experienced the smallest weekly loss of the four at 1.82%.

Three of the main sectors managed to post gains on Friday while the other seven fell. The financial sector led the way with a gain of 0.76%.

The industrial sector gained 0.23% and the materials sector joined the other two in positive territory with a modest gain of 0.06%.

The communication services sector fell 1.83% on Friday and that was the worst performance on the day.

The tech sector dropped 1.41% and the consumer discretionary sector declined 1.16%. Those were the only three that saw losses greater than 1.0% on the day.

My scans produced a slight negative result on Friday with a difference of only three. There were 19 bearish signals and 16 bullish signals. The late rally on Friday probably helped the lists from being more negatively skewed.

The barometer moved up once these results were added in to the calculation, from -28.7 to -19.8.

Today’s trade idea is a third straight bearish one and the company is Gap, Inc. (NYSE: GPS). The fashion retailer appeared on the bearish list on Friday and its fundamental indicators are pretty weak. The EPS rating is extremely low at 7 and the SMR rating is a C.

While Gap got on my radar because of the daily chart, I felt like the weekly chart made a more bearish case. We see how the stock has rallied off the March low, but it now faces resistance from the 104-week moving average. The 10-week RSI and the weekly stochastic indicators are in overbought territory currently. The daily stochastic indicators are in overbought territory as well and they made a bearish crossover on Friday.

Buy to open the November 19-strike puts on GPS at $3.40 or better. These options expire on November 20. I suggest a target gain of 75% and that means the stock will need to drop to $13.05. The stock was down below $6 back in March. I recommend a stop at $18.75.

— Rick Pendergraft

Legendary Stock-Picker Predicts Next 1,000% Stock [sponsor]
34-yr-old Matt McCall made history when he predicted five 1,000% winners on national TV. Now he's doing it all over again. Over the past decade, he's found 18 recommendations that soared 1,000% or more. And he just went public with what he predicts will be his next 1,000% winner. If you've ever wondered how legendary investors find stocks that shoot up 10X - and how you can do it too - click here.

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.