Stocks started off on a positive note on Friday and all four indices opened higher. Unfortunately that optimism didn’t last long and two of the four would enter negative territory by midday. The Nasdaq would finish with a loss of 0.48% and the S&P dropped 0.08%.
The Dow and the Russell were able to hold on to their gains and would finish higher by 0.36% and 0.34%, respectively.
Seven of the 10 sectors would finish higher on the day and three would finish lower. The financial sector led the way with a gain of 0.99% and it was followed by the utilities sector with a gain of 0.52%.
The tech sector fell 0.55% as the worst performer and it was followed closely by the consumer discretionary sector which dropped 0.50%. The communication services sector lost 0.34% as the third sector that finished in the red.
My scans turned positive on Friday with 18 bullish signals and 12 bearish signals.
The flip to positive results by the scans wasn’t enough to move the barometer very much. The indicator did rise slightly, but only to -19.8 from -22.9.
Even though there weren’t a great number of stocks on the bullish list, there were several trade setups that I liked. In the end I felt like a bullish trade on DR Horton (NYSE: DHI) would give us the greatest odds of success. The company has great fundamental ratings with an EPS rating of 99 and an SMR rating of an A. You can’t get better than that.
The daily chart shows a trend channel has formed since the beginning of the year and the stock is down near the lower rail of the channel at this time. It has also dipped below the 50-day moving average, but it did that at the March low as well. The stochastic indicators are the lowest they have been since January, but they experienced a bullish crossover on Friday.
Buy to open the July 87.50-strike calls on DHI at $6.60 or better. These options expire on July 16, 2021. I suggest a target gain of 100% and that means the stock will need to reach $100.70. The stock peaked at $106.89 a few weeks ago, so it won’t have to break that high to hit our target I suggest a stop at $87.00.
— Rick Pendergaft
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