Thursday’s trading action was very lackluster for most of the day and the indices were all seeing minor moves. Then around 2:00 PM, the Dow and S&P turned higher and would finish with gains of 0.65% and 0.64%, respectively.
The Nasdaq had been in negative territory for most of the day, but rose enough in the last two hours that if finished with a gain of 0.14%. The Russell turned down in the last hour and would finish with a loss of 0.26% on the day.
Nine of the 10 sectors moved higher on the day and they were led by the utilities sector with a gain of 1.49%. The financial sector gained 1.24% and the healthcare sector moved up 1.05%. Those were the only three sectors that gained over 1.0% on the day.
The energy sector dropped 0.84% as the only sector in the red on Thursday. The second worst performance was the consumer discretionary sector with a small gain of 0.05%.
The scans were slightly skewed to the bearish side with 24 signals on that side and 16 bullish signals.
The barometer changed very little after adding the results from Thursday, dropping from -6.4 to -6.5.
Even though there were more bearish signals than bullish signals, there wasn’t a single stock or ETF on the bearish list where I liked the trade setup. This left me with a few choices on the bullish side and I chose Seagate Technology (Nasdaq: STX). The company scores a 79 on its EPS rating and it gets an A on the SMR grading scale.
The biggest driver behind this trade is the bullish crossover from the stochastic indicators. We see similar setups in October and July. In both of those cases, the stock rallied nicely over the next month and a half and I look for another strong rally over the next month and a half.
Buy to open the February 60-strike calls on STX at $4.75 or better. These options expire on February 19, 2021. I suggest a target gain of 100% and this means the stock will need to reach $69.50. That would be a new high, but based on the previous rallies when the stock has been oversold, I think it can get there. I suggest a stop at $59.50.
— Rick Pendergraft
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