Wednesday saw stocks meander without much conviction throughout the day. All four of the main indices did manage to post gains, but the gains were mostly minimal. The Dow and S&P were up a fair amount at midday, but the slipped back down in the afternoon. The Nasdaq and Russell both spent quite a bit of time in negative territory, but managed to eke out small gains.
The final results showed the Nasdaq and S&P posting matching gains of 0.14%. The Russell moved up 0.13% and the Dow inched up 0.07%.
We saw an even split between the sectors for a second straight day, five moved higher and five moved lower, but they weren’t the same sectors from Tuesday that moved higher or lower. The energy sector rallied by 1.88% and was the top performer for a second straight day. The tech sector moved up 0.68% and was the second leading performer.
The materials sector fell 0.84% on Wednesday and that was the worst performance of the bunch. Consumer discretionary stocks were the second worst performing group and the sector dropped 0.46%.
My scans turned in yet another negative result last night and that puts the streak at six straight trading days with negative results. There were 77 bearish signals and 17 bullish signals.
The barometer dropped to -42.3 from -26.6 and that is the lowest reading since May 3.
After flipping back and forth between bullish and bearish trades for the last six days, I have a second straight bearish trade idea for you today. Li Auto (Nasdaq: LI) appeared on the bearish list and its fundamental ratings are only average. The EPS rating is 52 and the SMR rating is a C.
The daily chart shows how Li has been trending lower since the beginning of the year and the lows connect rather nicely to form the lower rail. The parallel upper rail is currently right around $25.50 based on the series of highs from January. We also see that the RSI and the stochastic indicators are both in overbought territory for the first time since November. The stochastic indicators made a bearish crossover last night.
Buy to open the July 26-strike puts on LI at $3.30 or better. These options expire on August 20, 2021. I suggest a target gain of 100% and that means the stock will need to drop to $19.40. The stock was down below $16 at the low in May, so it won’t have to break to a new low to hit our target. I suggest a stop at $26.25.
— Rick Pendergraft
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