This Bullish Trade Targets a 75% Return in Five Weeks

The losing streak hit three days on Tuesday as the selling pressure that started last Thursday extended past the Labor Day holiday. The bears took control in the early morning hours and futures were deeply in the negative before the market ever opened. This is the longest losing streak for the S&P since June.

The Nasdaq got hit hard again and recorded a loss of 4.11% on the day. The S&P dropped 2.78% and that was the second worst loss. The Dow fell 2.25% and the Russell declined 2.0%.

All 10 of the main sectors fell on Tuesday with tech taking the worst hit once again. The sector fell 4.52% and it was followed by the energy sector with a drop of 3.64%.

Nine of the 10 fell by more than 1.0% with only the utilities sector failing to hit that mark. Utilities were down 0.56% on the day.

The second smallest loss was consumer discretionary at 1.31%.

My scans continued to narrow the gap between bearish signals and bullish signals, but they remained negative for an eight straight night. There were 12 bearish signals and eight bullish signals on Tuesday.

The barometer continued to inch toward a zero reading as the difference between the two lists continues to shrink. The final reading on Tuesday was -13.3, up from -19.8.

After three straight bearish trade ideas I have a bullish one for you today. Astrazeneca (NYSE: AZN) appeared on the bullish list last night and the company gets great fundamental scores. The EPS rating is an 82 and the SMR rating is an A.

The pattern on the chart got my attention as much as the fundamental readings did. The pattern from Friday where the stock was much lower during the day but rallied to close near where it opened is known as a hammer pattern. The fact that the stock gained ground on Tuesday confirmed the pattern and given the selling that was going on elsewhere, it was an impressive performance.

Buy to open the October 50-strike calls on AZN at $5.80 or better. These options expire on October 16. I suggest a target gain of 75% and that means the stock needs to get to $60.15. The stock was above $64 in July, so we won’t have to get anywhere near that level to hit our target. I suggest a stop at $52.25.

— 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.