Stocks opened lower on Wednesday, but were able to turn things around early and by the end of the day three of the four indices would make it in to positive territory. The only index that didn’t finish in the black was the Nasdaq, but it only lost 0.05%.
The Dow led the way with a gain of 0.20% and it was followed closely by the S&P which moved up 0.18%. The Russell tacked on 0.11% to round out the gains.
The sectors were split with six moving higher and four moving lower. The energy sector returned to the place it seems to have been in for some time now as the biggest mover of the day—up or down in recent weeks. Yesterday saw the sector gain 3.25%. The financial sector jumped 1.1% and that was the second best performance.
On the down side the materials sector was the worst performer with a loss of 1.28% and the consumer staples sector fell 0.83% as the second worst performer.
My scans remained negative last night, but the size difference was smaller. There were 30 bearish signals and six bullish signals.
With the difference shrinking, the barometer continued to climb. The final reading for Wednesday was -55.0, up from -73.1.
After a couple of bullish trade ideas in a row, today’s trade idea is a bearish one, but it is a little different what we usually have. Eli Lilly (NYSE: LLY) appeared on the bearish list, but the company actually has pretty good fundamental ratings. The EPS rating is a 90 and the SMR rating is an A.
While the fundamentals are good, the stock has been trending lower since peaking in early July. In fact a trend channel has formed that defines the cycles within the overall trend. The stock just hit the upper rail of the channel and appears to be turning lower now. I look for the stock to make its next move lower over the next few weeks.
Buy to open the January 150-strike puts LLY5.65 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 $132.40. The stock was below $130 at the end of October, so it won’t need to break that low to hit our target. I suggest a stop at $150.00.
— Rick Pendergraft
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