Stocks moved higher out of the gate on Monday as the vaccines from Pfizer and Moderna started rolling out in the United States. The happy tone didn’t last long and stocks started falling before the morning session even ended. At the end of the day the indices would end up with split results.
The Nasdaq led the ways with a gain of 0.50% and the Russell joined it in positive territory with a move of 0.11%. The Dow was the worst performer with a drop of 0.60% and the S&P fell 0.44% as the other index that finished in the red.
The sectors weren’t nearly as balanced as the indices. There were eight that moved lower and only two sectors moved higher. The tech sector led the way with a gain of 0.36% and the consumer discretionary sector tacked on 0.15%.
On the down side, the energy sector continued to be the most volatile of the sectors and this time it dropped 3.48% as the worst performer. The industrial sector dropped 1.3% as the second worst performer and there were two others that lost over 1.0%.
My scans were split evenly last night, 21 signals on both the bullish and bearish sides. This hadn’t happened in many, many years and now it’s happened twice in the last two months (November 5).
The barometer continued to move higher on Monday, rising from -50.1 to -25.7 once these results were added in to the equation.
Because stocks opened higher and then moved considerably lower, there were many stocks on the bearish list with bearish engulfing patterns. One such company is the subject of today’s trade idea and it is Olin Corp. (NYSE: OLN). The company’s fundamentals are terrible with an EPS rating of 3 and an SMR rating of an E.
We see on the chart how the candlestick from yesterday shows that it opened higher than the highest point on Friday and then fell, finishing below the low on Friday. These patterns are known as trend reversal patterns. With the stock being overbought heading in to yesterday and the drop causing reversals in both the RSI and the stochastics, I look for Olin to trend lower for the next few weeks.
Buy to open the February 24-strike puts on OLN at $2.95 or better. These options expire on February 19, 2021. I suggest a target gain of 100% on the trade and that means the stock will need to drop to $18.10. The $18-$18.10 area acted as resistance in mid-October and could now act as support. I recommend a stop at $24.40.
— Rick Pendergraft
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