Stocks finished mixed on Thursday with three out of the four indices moving higher. The Nasdaq lost a meager 0.01% and danced around the breakeven mark all day.
The other three indices opened higher and were in positive territory all day long. The Russell jumped 1.06% to lead the way and the Dow gained 0.41%. The S&P gained 0.12% on the day.
Six of the 10 sectors moved higher on Thursday while four moved lower. The industrial sector led the way with a gain of 1.37% and the financial sector moved up 1.15%. Those were the only two sectors that gained over 1.0%.
The utilities sector fell 0.67% as the worst performer and it was followed closely by the consumer staples with a decline of 0.62%.
My scans turned in a third straight negative result last night with 33 bearish signals and 14 bullish signals.
The barometer turned in its seventh straight negative result with a reading of –10.0 and that was down from -1.8 on Wednesday.
With the market flipping back and forth between losses and gains, I feel it is a good time to have a relatively balanced portfolio of bullish and bearish trades. With that in mind, today’s trade idea is a bearish one on Stem, Inc. (NYSE: STEM). The company appeared on my bearish scan and it has a terrible EPS rating at only 13. There isn’t an SMR rating because the company has lost money up to this point and therefore there isn’t an ROE or profit margin.
The pattern you see on the chart is a Raff Regression channel. The middle line is the regression line and the upper and lower rails are determined by the biggest move away from the regression line. They are equidistant on each side and in this case they are dictated by the recent high—it was the farthest point away from the regression line. We also see how the stochastic indicators are in overbought territory and made a bearish crossover. The indicators made a similar move in early April before falling for just over a month.
Buy to open the July 30-strike puts on STEM at $6.70 or better. These options expire on July 16, 2021. I suggest a target gain of 100% and that means the stock will need to fall to $16.60. The low on May 13 was $16.00, so the stock won’t have to break to a new low to reach our target. I suggest a stop at $28.25.
— Rick Pendergraft
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