Monday saw the holiday-shortened week get off to a bad start as a new strain of the COVID-19 virus appears to have developed in England. This sent European markets lower and U.S. futures were down considerably in the pre-market hours. The indices did rally back and two of the main four ended up closing higher.
The Dow gained 0.12% and the Russell inched up 0.02%. The Nasdaq and S&P rallied considerably off their lows, but the finished with losses of 0.10% and 0.39%, respectively.
The sectors were more bearish than the indices with eight finishing lower and two finishing higher. The financial sector gained 1.35% and was far and away the best performer. The sector eked out a gain of 0.10% and those were the only two that moved higher.
The energy sector fell 1.93% and that was the worst performer on the day. The utilities sector dropped 1.21% and was one of the five sectors that lost over 1.0%.
My scans turned more negative with the selling pressure. There were 98 bearish signals and 12 bullish signals.
The barometer dropped from -15.5 to -48.1 once these results were added in to the calculation.
Even though there were far more bearish signals to choose from, the one trade setup that I liked the best was on Costco Wholesale (Nasdaq: COST) and it was on the bullish list. The company scores very well on the fundamental ratings with an EPS rating of 95 and an SMR rating of an A.
We see on the daily chart how the stock has been trending higher over the last seven months with a trend channel forming. The stock just hit the lower rail of the channel and looks poised to bounce. The stochastic indicators hit oversold territory recently, but made a bullish crossover last night. Similar patterns in June, September, and October preceded nice rallies in the stock.
Buy to open the February 360-strike calls on COST at $16.00 or better. These options expire on February 19, 2021. I suggest a target gain of 75% and that means the stock will need to move up to $388 which was where the stock peaked at the beginning of the month. I recommend a stop at $359.00.
— Rick Pendergraft
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