Trade Baxter International (NYSE: BAX) for a Potential 75% Return in About Five Weeks

The indices had a hard time gaining much traction in either direction on Tuesday, but they finished on an upswing to close in positive territory. All four of the main indices finished higher on the day, but the Russell jumped 1.77% to stand out above the rest.

The Nasdaq gained 0.28% on the day, the Dow moved up 0.19%, and the S&P inched up 0.04%.

The sectors were evenly split with five moving higher and five moving lower. The energy sector jumped by 3.49% to lead the way and it was followed by the consumer discretionary sector with a gain of 1.53%. Two other sectors gained over 1.0%.

The communication services sector fell 1.61% as the worst performer and it was followed by the healthcare sector which dropped 1.10%.

My scans remained skewed to the negative side with 85 bearish signals and 12 bullish signals.

The barometer continued to fall on Tuesday, falling to -58.1 from -40.0.

Even though there were numerous stocks to choose from on the bearish list, there were only two where I liked the charts for a downward move. Both of those stocks had pretty strong fundamentals, but I decided a bearish trade idea on Baxter International (NYSE: BAX) provided the best odds of success. The EPS rating is an 85 and the SMR rating is an A, but the chart suggests a downturn is on the horizon.

We see on the daily chart how Baxter has been moving lower since last April and a trend channel has formed that defines the various cycles within the overall downward trend. The stock just hit the upper rail of the channel and the RSI and stochastic indicators both just hit overbought readings. The stochastic indicators made a bearish crossover last night.

Buy to open the February 85-strike puts on BAX at $5.60 or better. These options expire on February 19, 2021. I suggest a target gain of 75% and that means the stock will need to fall to $75.20. The stock was below the $75 level at the end of November and beginning of December. I recommend a stop at $83.00.

— Rick Pendergraft

'I love you, Jay! I went from a $7,000 portfolio to $50,000 literally OVERNIGHT!' [sponsor]
I woke up to this message in my inbox one day in the midst of this crisis when our E*Trade option skyrocketed 1,421% in 9 days. One member, Jake, profited $43,000 literally overnight. And the thing is, Jake had been following me for only about four weeks. I'm sending out these opportunities every month now. Click here to see what to do to get my next trade.

Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.