All four indices opened higher on Monday, but all four would slip in the morning session. The selling pressure would continue to mount as the day went on and all four closed at or close to their lows of the day.
The Nasdaq took the biggest hit with a loss of 1.65%. The S&P was right behind it with a drop of 1.63% and the Dow lost 1.44%. The Russell took the smallest loss at 1.23%.
All 10 sectors moved lower on the day and all but one lost more than 1.0%. The utilities sector managed to keep its loss to 0.84%. The second smallest loss was the materials sector at -1.19%.
The energy sector was the worst performer for the second straight day and this time it fell 2.12%. It was the only sector that lost over 2.0%. The tech sector was the second worst performer with a drop of 1.83%.
My scans remained negatively skewed with 19 bearish signals and only six bullish signals.
With the number of stocks on the bearish list falling, the barometer continues to climb from the extremely low reading last week. Last night’s final reading was -25.8 after a reading of -57.0 on Friday.
Today’s trade idea is a bearish one and it is a little different than usual. The subject company is Franklin Resources (NYSE: BEN) after it appeared on the bearish list last night. What makes it different is the fact that the fundamental ratings aren’t that bad with an EPS rating of a 73 and an SMR rating of a B.
What got my attention more than anything was the chart. Yesterday’s candlestick formed a bearish engulfing pattern and that suggests that the bears took control at some point during the day yesterday. The stock is overbought based on both the RSI and the stochastic readings. The stochastics made a bearish crossover last night and those were pretty good bearish signals in June and August.
Buy to open the December 25-strike puts on BEN at $2.50 or better. These options expire on December 18, 2020. I suggest a target gain of 100% and that means the stock will need to drop to $20.00. The stock was below the $19 level in September, so it won’t have to break that low to hit our target. I recommend a stop at $23.75.
— Rick Pendergraft
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