Wednesday was another mixed day for the market only the performances were flipped from the day before. The Nasdaq was the top performing index with a gain of 2.01%. The S&P joined the party with a gain of 0.77% after a decline on Tuesday.
After leading the indices for the first two days of the week, the Russell lost 0.01%. The Dow dropped 0.08% as the worst performing index.
The sectors were evenly split yesterday with five moving higher and five moving lower. In a reversal of fortune from the first part of the week, the tech sector jumped 2.37% as the leading performer. The communication services sector was the second leading sector with a gain of 0.91%.
The materials sector was the worst performer of the bunch with a decline of 1.49% while the energy sector fell 1.03%. Those were the only two sectors that lost over 1.0% on the day.
My scans remained bearishly skewed, but the results weren’t as bad as Tuesday night. There were 37 bearish signals and two bullish signals last night.
The barometer did move up a little since the numbers weren’t as bad. The final reading last night was -58.5, up from -63.2 the night before.
Once again we had an abundance of bearish signals to sort through and a limited number of bullish signals. Today’s trade idea is another bearish one and that makes it three in a row. Today’s subject company is KAR Auction Services (NYSE: KAR) and it scores a 42 on the EPS rating system with a D on the SMR grading scale.
The chart shows how the stock has struggled in the $18.50 area over the last few months. In fact, I recommended puts on the stock back in August as well. We see how the stock fell down below the $14 in mid-September and once again in late October. The stock is hitting that resistance again and it is overbought based on both the RSI and the stochastic indicators. I look for another sharp drop in the coming weeks.
Buy to open the December 20-strike puts on KAR at $2.60 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 $14.80. That is well above the lows from September and October. I recommend a stop at $19.00.
— Rick Pendergraft
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