The gains that started on Monday have continued throughout the last four days and Thursday was another big day. At this point the S&P is up over 7% for the week and could be in for its best week since April. All four indices moved higher on the day with all four opening higher and remaining there throughout the day.
The Russell led the way with a gain of 2.78% and it was followed by the Nasdaq which moved up 2.59%. The Dow and the S&P had matching gains of 1.95%.
Nine of the 10 sectors moved higher on the day while the energy sector closed unchanged. The smallest gain of the day was by the healthcare sector which moved up 0.20%.
The materials sector was the top gainer on the day with a move of 4.08% and it was followed by the tech sector with a gain of 3.11%.
My scans were evenly split last night with 10 signals on each list.
The barometer continued to fall with the lists being the same size. The final reading for last night was 22.9, down from 59.2 on Wednesday.
Even though there were 20 stocks to choose from, there were only two stocks where I liked the total picture—the fundamentals matched the chart and the risk/reward relationship made sense. Ultimately I decided that a bearish trade on Melco Resorts (Nasdaq: MLCO) gave us the greatest odds of success. The company’s fundamental ratings are pretty bad with an EPS rating of only 7 and the SMR rating is a D.
Two things jumped out at me from the chart. First, the stock rallied in recent weeks, but appears to have hit resistance at its 50-day moving average. Secondly, the stochastic indicators hit overbought territory and made a bearish crossover last night. Over the last five months every time the indicators have made a bearish crossover the stock has dropped, even when they weren’t in overbought territory.
Buy to open the January 18-strike puts on MLCO at $2.55 or better. These options expire on January 15, 2021. I suggest a target gain of 75% and that means the stock will need to drop to $13.53. That price is below the lows from the last few months, but it’s not a new 52-week low. I suggest a stop at $18.20.
— Rick Pendergraft
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