After opening lower, stocks rallied and all four of the main indices would reverse and finish with gains. The Russell saw the biggest turnaround and finished with a gain of 1.4%.

The Nasdaq moved up 0.50%, the Dow tacked on 0.35%, and the S&P gained 0.28% to round out the gains.

On the sector front, they were more mixed than expected given the performances from the indices. Six sectors moved higher while four moved lower on the day. The energy sector led the way with a gain of 1.49% and the healthcare sector finished with the second best move at 0.76%.

The utilities sector dropped 0.30% and was the worst performer on the day. The consumer discretionary sector fell 0.21% and was the second worst performer.

My scans were bearish once again last night with 58 bearish signals and 19 bullish signals.

The barometer dropped to -33.9 last night after a reading of -28.3 on Monday.

I’ve noticed an interesting trend in the scan results over the last few nights. The scan results and the fundamental indicators have been aligning more appropriately. The stocks on the bullish list have had strong fundamental indicators and the stocks on the bearish list have had poor fundamentals. That doesn’t always happen, but it’s nice when it does.

With that in mind, today’s trade idea is a bullish one and the company is Daqo New Energy (NYSE: DQ). Yes it was on the bullish list and yes it has great fundamental readings. The EPS rating is 91 and the SMR rating is an A.

Daqo rallied sharply in September and early October, jumping over 165% from the low to the high. Since mid-October the stock has gone through a consolidation phase between $37.50 and $47.50. This gave the 50-day moving average time to catch up to the stock and it looks as if it is acting as support now.

Buy to open the January 38-strike calls on DQ at $6.90 or better. These options expire on January 15, 2021. I suggest a target gain of 100% and that means the stock will need to jump to $51.80. The stock will have to break to a new high, but that wasn’t an issue during the rally in September. I recommend a stop at $37.00.

— Rick Pendergraft

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