Tuesday saw the indices move higher across the board, but the gains varied considerably. All four opened higher and remained in positive territory throughout the day, but a late dip caused the Dow to give up most of its gains. It finished with a move of only 0.10%.
The Nasdaq was the top performer with a jump of 3.69%. The Russell rallied 1.97% and the S&P tacked on 1.42%.
Six of the 10 main sectors moved higher on the day with the consumer discretionary and tech stocks being the biggest winners. The discretionary sector led with a gain of 3.78% and the tech sector was right behind it with a jump of 3.40%.
The energy sector was the worst performer with a drop of 1.75%. The financial sector fell 0.91% as the second worst loss.
My scans were interesting last night with big numbers on both sides of the equation. There were 133 bullish signals and 42 bearish signals. On the bearish side, 23 were energy related and five were financials, accounting for 28 of the 42 signals.
The barometer jumped to 60.6 from 36.2 once the totals were added in to calculations.
Because of the odd rotation that has been going on recently, there were some very high quality names on the bullish list last night. There were 30 stocks with EPS ratings of 80 or higher and 41 with an SMR of A. That’s out of 99 stocks, the other 34 signals were on ETFs.
Yes there were a lot of quality stocks on the bullish list, but there were also some great setups on various ETFs. One theme among the ETFs was emerging market funds. One of them was the iShares MSCI Emerging Markets ETF (NYSE: EEM) and I liked it the best for the risk/reward relationship it provides. Any time I have a choice between the risk of an individual stock or an ETF, I will almost always try to reduce risk with the fund.
What we see on the chart is that the EEM has been trending higher since last June with a trend channel forming. The fund hit the lower rail on Monday before bouncing yesterday. We also see that the RSI was extremely low and the stochastic indicators are in oversold territory. The stochastics made a bullish crossover last night and similar setups in September and November proved to be good signals.
Buy to open the April 51-strike calls on EEM at $3.40 or better. These options expire on April 16, 2021. I suggest a target gain of 100% and that means the fund will need to reach $57.80. The fund peaked at $58.29 in February, so it won’t have to break through that potential resistance. I recommend a stop at $51.90.
— Rick Pendergraft
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