Trading Carnival (NYSE: CUK) Targets a 75% Return in About Five Weeks

The Dow and S&P saw their six-day winning streaks come to an end yesterday as the indices finished mixed on the day. The S&P lost 0.11% and the Dow only slipped 0.03%, but they were down never the less.

As for the Russell, it stretched its winning streak to seven days with a gain of 0.28%. The Nasdaq joined the small-cap index in the black with a move of 0.14%.

Like the indices, the sectors were evenly split on Tuesday with five moving higher and five moving lower. On the plus side, the communication services sector led the way with a gain of 0.33% and the industrial sector gained 0.25% as the second best performer.

The energy sector took the biggest hit on the day, falling 1.05%. The materials sector dropped 0.74% as the second worst loss and the consumer discretionary sector fell 0.53%.

My scans continued to move to a more negative posture on Tuesday with 65 bearish signals and nine bullish signals. That is the biggest negative reading in two weeks.

The barometer also continued to fall, dropping to -27.6 from -2.8.

With the lists being so lopsided, today’s trade idea is another bearish one. The subject company is Carnival Plc. (NYSE: CUK) and yes, it appeared on the bearish list. The company’s fundamental ratings are pretty bad with an EPS rating of 5 and an SMR rating of an E.

It might be a little early to call this a downward-sloped trend channel, but the pattern on the chart was what jumped out at me first. Companies like Carnival have been bouncing around depending upon how stimulus talks seem to be going. Even though it appears as though there is another round of stimulus on the horizon, but I still think it is going to be a while before cruise operators see anywhere near the traffic they were seeing pre-pandemic.

Buy to open the March 20-strike puts on CUK at $2.75 or better. These options expire on March 19, 2021. I suggest a target gain of 75% and that means the stock will need to drop to $15.18. That target is below the low reached in January, but the lower rail should be down below that price level within a week or so. I recommend a stop at $19.50.

— Rick Pendergraft

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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.