After two straight days of big gains, stocks saw mixed trading action on Wednesday. All four indices were in negative territory at some point in time, but only the Nasdaq finished with a loss. The loss was only 0.02%, but it was a red figure never the less.
The Russell topped the indices with a gain of 0.38%. The Dow inched up 0.12% and the S&P only gained 0.10%.
Six of the 10 sectors moved higher on the day and they were led by the energy sector with a gain of 4.27%. The communication services sector rallied for a gain of 1.34% and that was the second best performer.
The worst performance came from the healthcare sector with a drop of 0.71%. The consumer discretionary sector lost 0.56% and that was the second worst decline.
My scans remained strongly positive, but not as much so as we have seen in the last few days. There were 52 bullish signals and four bearish signals on the lists last night.
The barometer dropped a little with the decline in bullish signals. The final reading was 78.7, down from 89.7 on Tuesday.
There were a few sectors that were well represented on the bullish list last night, but none were as prominent as the energy sector. There were 17 stocks and funds from the sector. Given that information, today’s trade idea is on the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP). The fund also got a bullish signal from Tickeron, the AI platform I use, and that signal had a confidence level of 88%.
We see the trend channel on the chart and how the fund just bounced off the lower rail in the last few days. The stochastic indicators made a bullish crossover last night and the same circumstances occurred on late October and late December before the fund jumped over 25% in both instances.
Buy to open the March 67-strike calls on XOP at $6.20 or better. These options expire on March 19, 2021. I suggest a target gain of 100% which means the fund will need to reach $79.40. That target is above the recent high, but based on the recent pattern it should be achievable. I recommend a stop at $64.90.
— Rick Pendergraft
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