The New Year did not start off how the bulls wanted. Futures were modestly higher heading in to the open and the indices all opened higher. The gains didn’t last long though and all four indices moved in to negative territory rather quickly and the losses accelerated toward midday. Stocks would rally to pare the losses, but all four indices still finished with sizable losses.
The S&P took the worst hit with a loss of 1.48%. The Nasdaq and Russell tied for the second worst performance, both dropping 1.47%. The Dow fell 1.25% as the “top” performer of the four.
Nine of the 10 sectors moved lower on the day with only the energy sector moving higher. Energy continues to move separately from the rest of the market and yesterday it gained 0.16%.
The utilities sector was the worst performer on Monday with a drop of 2.52%. The industrial sector fell 2.42%. These were the only two sectors that lost more than 2%, but there were another four sectors that lost over 1.0%.
My scans turned more negative on Monday with 59 bearish signals and 27 bullish signals.
The barometer dropped from -6.5 to -16.9 once these results were added in to the calculation.
After three straight bullish trade ideas and with the abundance of bearish signals to choose from, today’s trade idea is a bearish one. Vistra Energy (NYSE: VST) appeared on the bearish list and its fundamental indicators are mixed. The EPS rating is slightly below average at 46, but the “B” SMR rating is slightly above average.
The main driver behind this trade idea is the chart. We see a downwardly sloped trend line connects the highs from June and November. Now the stock hit the trend line last week before turning lower yesterday. We also see that the stochastic indicators are in overbought territory and made a bearish crossover last night.
Buy to open the February 20-strike puts on VST at $1.55 or better. These options expire on February 19, 2021. I suggest a target gain of 75% and that means the stock will need to drop to $17.25. This is lower than the December low, but not as low as the October low. I recommend a stop at $20.10.
— Rick Pendergraft
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