This Bullish Healthcare Trade Targets a 75% Return in 10 Weeks

With President Trump’s improved prognosis, investors seemed to breathe a sigh of relief on Monday and that sent the indices soaring. All four opened considerably higher and then remained near the opening levels until the end of the day when the rally accelerated in to the close.

The Russell led the way with a gain of 2.77% and the Nasdaq was close behind with a gain of 2.32%. The S&P jumped 1.8% and the Dow tacked on 1.68%.

All 10 sectors moved higher on the day with three gaining over 2.0%. The energy sector led the way with a move of 3.0% as oil prices shot up over 6%.

The tech sector notched an impressive gain of 2.19% and the healthcare sector moved up 2.05%.

The only sector that failed to gain at least 1.0% was the consumer staples sector and it gained 0.67%.

My scans were almost dead even last night with 20 bullish signals and 19 bearish signals. The bullish list was dominated by energy stocks with 12 signals coming from the sector.

The barometer moved up a little with the slight positive skew. The final reading on Monday was -15.0 after a reading of -21.9 on Friday.

One problem with having so many signals from the energy sector on the bullish list was the lack of very many good fundamental ratings. The sector as a whole has pretty weak fundamentals right now. Despite that hurdle, today’s trade idea is a bullish one. After four straight bearish trade ideas, I have a bullish one on Eli Lilly (NYSE: LLY) for you. The company has great fundamentals with an EPS rating of 97 and an A SMR rating.

While it was the daily indicators that generated the bullish signal on Lilly, I felt like the weekly chart did a better job of showing the bullish trend. We see that the stock dropped throughout the third quarter and is now oversold based on the weekly stochastic indicators. The stock has been moving higher and a trend channel defines the cycles within the overall trend. The stock is at the lower rail of that channel at this time.

Buy to open the December 140-strike calls on LLY at $12.20 or better. These options expire on December 18. I suggest a target gain of 75% and that means the stock will need to rally up to $161.35. That is nowhere near the high in July, so the stock won’t have to reach a new 52-week high to hit our target. I recommend a stop at $139.00.

— 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.