Trade This Stock’s Drop for a 75% Return by mid-November

Stocks bounced back from Tuesday’s selling with pretty decent rallies for the main three indices. The Russell lagged the others a little, but still logged a gain of 0.20%.

The Dow led the way with a gain of 1.2% and the S&P moved up 0.83%. The Nasdaq tacked on 0.74% on the day.

Eight of the 10 main sectors gained ground on Wednesday. The only two that lost ground were the industrial sector (-0.30%) and the energy sector (-0.23%).

The healthcare sector led the way with a gain of 1.61%. The financial sector and the consumer staples sector tied for the second best performance, both registering gains of 1.22%.

My scans were pretty quiet again last night, but they did produce a few more signals than they did on Tuesday. There were four bullish signals and 16 bearish signals.

The barometer dropped pretty sharply once these results were added in to the equation, falling from 73.2 to 35.4.

Out of the 20 signals, only one caught my eye as far as the whole trade setup. The stock was Holdings (Nasdaq: BILL) and it appeared on the bearish list. The company fares poorly on the fundamental ratings with an EPS rating of 19 and an SMR rating of a C.

What I saw on the chart was a possible head and shoulders pattern forming. I have marked the various parts of the pattern and it looks like the right shoulder is forming now in the $104 area. For the pattern to be confirmed, the stock will have to drop below the neckline in the $82 area. I also took note of what the oscillators looked like when the left shoulder and the head were formed and where they are now.

Buy to open the November 105-strike puts on BILL at $14.60 or better. These options expire on November 20. I suggest a target gain of 75% which means the stock will need to drop to $79.45. The stock was below the $80 level as recently as mid-July. I suggest a stop at $105.00.

— 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.