After the runoff Senate races in Georgia were concluded, the indices moved in different directions as it appears the Democrats will have a majority. This led to big gains in some sectors and losses in other sectors.
The Russell jumped sharply from the open on Wednesday and it finished with a gain of 3.98%. The Dow finished with a gain of 1.44% and the S&P moved up 0.57%. The Nasdaq opened lower, moved in to positive territory before midday, but then sold off in the afternoon to finish with a loss of 0.61%.
Eight of the 10 sectors gained ground with the gains being wide ranging. The financial sector gained 4.42% to lead the way and the materials sector jumped 4.09%. Six other sectors gained over 1.0% and the energy sector rallied by 3.05%.
The tech sector was the worst performer with a drop of 1.72% and the communication services sector fell 0.48%.
My scans turned bearish on Wednesday with 41 bearish signals and 20 bullish signals.
The barometer dropped from -11.2 to -15.6 once these results were added in to the calculations.
Even though there were a great number of stocks and ETFs to choose from between the two lists, it was difficult to find a trade setup where the fundamental and technical indicators aligned. In the end, I felt a bearish trade idea on Sanofi (Nasdaq: SNY) gives us the best chance at a successful trade. The company’s fundamentals are actually pretty good with an EPS rating of 68 and an SMR rating of an A, but the chart paints a different picture.
The first thing that jumped out at me on the chart was how the stock hit resistance at its 50-day moving average before turning lower in the last few days. This pullback was enough to cause the stochastic readings to make a bearish crossover while in overbought territory. We also see that the stock was higher during the day yesterday, but at the end of the day the momentum was to the downside.
Buy to open the February 49-strike puts on SNY at $2.45 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 $44.71. This is slightly lower than the low in October. I recommend a stop at $49.30.
— Rick Pendergraft