The market was hit with two pieces of bad news before the open on Friday. First was the news the President Trump had tested positive for COVID-19 that sent futures plunging Thursday night. The second piece of information was the disappointing employment report for September. Analysts expected job growth of 800K, but the actual job growth was only 661K.
As investors tried to digest the information, all four indices fell sharply at the open. However, the Dow and the Russell rallied back. The Russell ended up with a gain of 0.53% on the day. The Dow made it in to positive territory, but couldn’t hold the gains and finished with a loss of 0.48%.
The Nasdaq took the biggest loss at 2.22% and the S&P dropped 0.96%.Neither of them ever made it in to positive territory.
The sector results were rather surprising—at least they were to me.
The sectors ended up with an even split on Friday—five moved higher and five moved lower.
The utilities sector was the top performer with a gain of 1.18% and it was followed by the industrial sector with a gain of 1.06%.
On the downside, the tech sector dropped 2.63% as the worst performer and the communication services sector fell 1.98%.
Of the other three sectors that finished with losses, none of them lost more than 1.0%.
My scans were more active Friday night with 16 bullish signals and 44 bearish signals. The vast majority of the names on the bearish side were from the tech sector.
The barometer continued to fall with these results being more negative. The final reading on Friday was -21.9, down from -4.1 on Thursday.
While there was a pretty fair number of stocks and ETFs to choose from between the two lists, there were only a few that stood out. The problem was that a great number of the stocks on the bearish list had really good fundamental ratings. One stock where that wasn’t the case was PagerDuty (NYSE: PD). The company was on the bearish list and its EPS rating is 57 while its SMR rating is a D.
We see how the stock dropped dramatically at the beginning of September and that was after a disappointing earnings report. The stock has rallied back over the last three weeks, but now it appears to be hitting resistance at its 50-day moving average. We also see that the stochastic indicators are in overbought territory and made a bearish crossover on Friday. In the last three instances where this has occurred, the stock has dropped significantly in the following weeks.
Buy to open the November 45-strike puts on PD at $4.00 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 $23. That is the exact price the stock hit at its low in September. I recommend a stop at $28.50.
— Rick Pendergraft
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