It was an interesting ride for futures on Tuesday night as the different index futures reacted to the election results rolling in. Nasdaq futures were the first to really take off late Tuesday and then the S&P and Dow followed suit. The Russell waffled back and forth a little and those patterns played out in Wednesday’s action.
The Nasdaq jumped 3.85% on Wednesday and the S&P gained 2.20%. The Dow moved up 1.34% and the Russell eked out a gain of 0.05% after being in the red late in the day.
The sector action was a case of extremes with six sectors moving higher and four moving lower. The healthcare sector led the way with a gain of 4.44% and it was followed by the communication services sector which jumped 4.31%. The tech sector moved up 3.89%.
The four sectors that lost ground all lost over 1.0%. The materials sector fell 1.70% as the worst performer and it was followed by the utilities sector which lost 1.50%.
My scans saw a big change on Wednesday with 12 bullish signals and 13 bearish signals. The net of -1 halted a string of four straight positive readings with readings of 47, 177, 142, and 45.
The barometer dropped sharply after these results were added in to the equation, falling from 100.7 to 59.2.
After four straight bullish trade ideas and an abundance of bullish signals, I have a bearish trade idea for you today. Baker Hughes (NYSE: BKR) was on the bearish list and it doesn’t score very well on the fundamental ratings. The EPS rating is a 53 and the SMR rating is a D.
The daily chart shows how the stock has been trending lower over the last five months with a trend channel forming to define the cycles within the overall downward trend. The stock just hit the upper rail of the channel and turned lower. The 10-day RSI and the stochastic indicators are in overbought territory. The last two times the two indicators were in overbought territory at the same time was when the upper rail was formed.
Buy to open the December 17-strike puts on BKR at $2.30 or better. These options expire on December 18, 2020. I suggest a target gain of 100% for this trade and that means the stock will need to drop to $12.40. The stock was down to $12.13 in early October, so it won’t have to break that low to hit our target. I recommend a stop at $17.00.
— Rick Pendergraft
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