Wednesday was an interesting day for stocks with three of the four indices opening lower as investors awaited word from the FOMC. The Dow managed to open higher, but it made its way in to negative territory ahead of the rate announcement and statement from the Fed.
After getting assurance from the Fed that they weren’t going to be in a hurry to hike rates, investors turned bullish and all four indices finished the day higher.
The Dow led the way with a gain of 0.58% and it was followed by the Russell which gained 0.46%. The Nasdaq moved up 0.40% and the S&P tacked on 0.29%.
Six of the 10 main sectors moved higher on the day while four fell. The consumer discretionary sector was the top performer with a gain of 1.4% and it was followed by the industrial sector with a move of +1.14%. Those were the only two to gain over 1.0%.
The utilities sector dropped 1.63% as the worst performing sector and the healthcare sector fell 0.38%.
Despite the reversal, my scans remained decidedly negative with 117 bearish signals and four bullish signals.
The barometer dropped to -95.0 from -72.5 once these results were added in to the calculation.
Even though there were an abundance of bearish signals generated on Wednesday night, most of the charts that looked like they were setting up for a sizable move lower had good fundamental indicators. Despite the strong fundamentals, the overall setup I liked best was on Dollar Tree (Nasdaq: DLTR). The company scores a 91 on the EPS rating system and an A on the SMR grading system.
What we see on the chart is the main driver behind this trade idea. Connecting the highs from January and February gives us a downward sloped trend line. The stock attempted to break above the trend line, but failed. Now the stochastic indicators, which are in overbought territory, have made a bearish crossover. We saw the same setup at the January and February highs.
Buy to open the May 110-strike puts on DLTR at $6.60 or better. These options expire on May 21, 2021. I suggest a target gain of 100% and that means the stock will need to drop to $96.80. The stock bottomed at $95.86 two weeks ago, so it won’t have to break that low to hit our target. I recommend a stop at $111.00.
— Rick Pendergraft
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