Selling returned to the market on Friday after the big earnings announcements on Thursday night. All four indices opened lower, continued down throughout the morning, and then seemed to stabilize for most of the afternoon. There was a slight upward turn at the end of the day.
The Nasdaq finished with the worst loss at 2.45% and it was followed by the Russell which lost 1.48%. The S&P fell 1.21% and the Dow dropped 0.59%.
Eight of the 10 sectors moved lower on the day with energy (+0.56%) and financials (+0.29%) being the only two that moved higher.
The tech sector got hit hard after the earnings announcements from Amazon, Apple, Facebook, and Alphabet. The sector fell 2.21% and it was followed closely by the consumer discretionary sector which fell 2.18%.
My scans turned decidedly more bullish on Friday with 181 bullish signals and only four bearish signals. This is the biggest positive skew since September 25, right as the most recent rally was starting.
The barometer jumped to 83.6 from 14.3 after these results were added in to the equation.
Even though there were a huge number of stocks to choose from, there weren’t a great number that really jumped out at me for both the fundamentals and the chart setup. One that did was Seagate Technology (Nasdaq: STX). The company was on the bullish list and it scores an 81 on the EPS rating system and an A on the SMR grading scale.
We see on the chart that the stock has been trending higher since late July and a trend line connects the lows over the three months. The daily stochastic indicators are in oversold territory and made a bullish crossover on Friday. The 10-day RSI hit oversold territory last week and that was the first time the indicator had been that low since the gap lower in July.
Buy to open the January 45-strike calls on STX at $5.10 or better. These options expire on January 15, 2021. I suggest a target gain of 75% and that means the stock will need to reach $53.93. The stock was above $54 in June, so it won’t have to break that high to hit our target. I suggest a stop at $45.75.
— Rick Pendergraft
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