We had mixed results from both the indices and the sectors on Wednesday. All four indices opened higher, but the Nasdaq would turn lower shortly after the open and the S&P turned lower just after midday. The Nasdaq would finish with a loss of 0.99% and the S&P dropped 0.41%.
The Dow was in positive territory for the entire day, but turned lower in the afternoon to finish with a gain of only 0.16%. The Russell was also in positive territory for the entire day and would finish as the top performer with a gain of 0.84%.
Five of the main sectors moved higher and five moved lower on Wednesday. The energy sector jumped 2.97% and was far and away the top performer on the day. Oil jumped 4.54% to help boost the sector. The materials sector rallied by 0.72% to finish as the second best performer.
The tech sector dropped 1.04% as the worst performer and it was followed closely by the communication services sector which fell 1.03%.
My scans turned more negative on Wednesday with 119 bearish signals and 34 bullish signals. The net of -85 is the second worst reading in the current stretch of eight straight negative readings.
The barometer dropped to -58.2 once these results were added in to the calculation.
After three straight bearish trade ideas, I was looking for some balance with a bullish one. The one theme on the bullish list was oil and energy names. Half of the bullish signals came from the energy sector. That led me to a bullish trade on the Direxion Daily Energy Bull 2x Shares (NYSE: ERX). In addition to being on my bullish scan, the fund got a bullish signal from Tickeron. The signal showed a 90% chance of a move higher over the next month based on similar signals from the past.
We see how the fund has moved higher over the last five months with a trend channel forming to define the cycles within the overall upward trend. The fund just hit the lower rail of the channel and it found support from its 50-day moving average as well. We saw a similar scenario at the end of January and the fund nearly doubled over the next six weeks.
Buy to open the May 21-strike calls on ERX at $3.60 or better. These options expire on May 21, 2021. I suggest a target gain of 100% and that means the fund will need to reach $28.20. The fund topped out at $28.60 in March, so it won’t have to break that high to reach our target. I suggest a stop at $21.00.
— Rick Pendergraft
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