After getting hit hard last week and especially on Friday, stocks rallied on Monday. All four of the main indices opened higher and remained in positive territory throughout the day.
The Nasdaq led the way with a gain of 2.55% and the Russell was close behind with a gain of 2.53%. These two indices rallied in to the close and closed near the highs of the day.
The S&P rallied for a 1.61% gain and the Dow moved up 0.76%. The Dow sold off a little heading in to the close.
All 10 sectors moved higher on the day, but two really stood out. The consumer discretionary sector jumped 2.53% and it was followed closely by the tech sector with a gain of 2.51%.
There were only four sectors that failed to gain at least 1.0%. The consumer staples sector eked out a gain of 0.09% as the worst performer and the healthcare sector edged up 0.38% as the second worst performer.
My scan results turned sharply more positive on Monday with 146 bullish signals and only one bearish signal.
The barometer jumped to 72.8 from 14.8 once these results were added in to the equation. That is the highest reading since November 3.
Obviously with only one bearish signal from last night, today’s trade idea is a bullish one. When there are a great number of stocks and funds to choose from like this, I tend to go for the safety of an ETF rather than single stock exposure. This led me to a bullish trade on the SPDR S&P Bank ETF (NYSE: KBE). We don’t have the usual fundamental ratings like we have on individual stocks. In these cases I like to get confirmation from Tickeron’s AI Trend Prediction tool and it generated a bullish signal on KBE on Friday. The signal shows an 88% confidence level.
The fund has been trending higher since late September with a trend channel forming to define the various cycles within the overall trend. The stock just hit the lower rail on Friday and now looks poised to move higher. The daily stochastic indicators are in oversold territory and made a bullish crossover. The last time this happened was in late September before the fund rallied over 25%. The last time it hit the lower rail of the channel was in late October and the KBE rallied 31%.
Buy to open the March 40-strike calls on KBE at $5.00 or better. These options expire on March 19, 2021. I suggest a target gain of 100% and that means the fund will need to reach $50.00. That is above the high from January, but it is only 15% above the current price. I recommend a stop at $41.80.
— Rick Pendergraft
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