Stocks moved significantly higher on Friday with all four indices registering solid gains. The Dow led the way with a gain of 0.80% and it was followed closely by the S&P with a gain of 0.77%. The Nasdaq moved up 0.73% on the day while the Russell lagged the other slightly but still managed to tack on 0.48%.
Nine of the 10 main sectors moved higher on Friday with the materials sector losing 0.08% as the only one in the red on the day.
[hana-code-insert name=’adsense-article’ /]The healthcare sector was far and away the best performer on the day with a gain of 2.13%.The communication services sector moved up 0.83% and the tech sector moved up 0.81% as the second and third best performers.
My scans turned positive on Friday with 27 names on the bullish list and 12 on the bearish list.
The barometer moved in to positive territory after these results were added in to the equation.
The final reading on Friday was 2.1, up from -6.7.
The positive reading ended a 22 day streak of negative readings.
One of the more interesting things about Friday’s scan results were the number of stocks on the bearish list with strong fundamentals. There were only two stocks that didn’t have at least an EPS over 60 or an SMR rating of a B or higher. With the stocks on the bearish list being so solid fundamentally, I focused on finding a bullish trade idea.
The setup I liked best was on the iShares MSCI Brazil Capped ETF (NYSE: EWZ). The fund doesn’t have fundamental ratings, but it got a bullish signal from Tickeron’s Trend Prediction Engine on Friday and past predictions have been successful 87% of the time.
The EWZ has been trending higher since bottoming in May. A trend channel has formed over the last three months and the stock just bounced off of the lower rail. The daily stochastic readings hit oversold territory and just made a bullish crossover on Friday. In similar instances in August and October, the fund gained over 12% in the next month.
Buy to open the January 42-strike calls on EWZ at $2.40 or better. These options expire on January 17. In order for these options to double the fund will need to reach $46.80. The fund peaked above this level back in July and the upper rail should be above this price within a week or so. I suggest a target gain of 100% with a stop at $42.00.
— Rick Pendergraft
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