President Trump gave the market a boost on Thursday with a pre-market tweet that the U.S. and China were getting close on the details of the first phase of a trade agreement. That was investors needed to hear and stocks moved higher as a result.
All four of the main indices moved higher on the day with the S&P leading the way with a gain of 0.86%. The Dow and the Russell tied for the second best performance with gains of 0.79%. The Nasdaq moved up by 0.73% and that was the smallest gain of the four.
[hana-code-insert name=’adsense-article’ /]Eight of the 10 sectors moved higher on the day.The energy sector jumped by 2.01% to lead the way and it was followed closely by the financial sector with a gain of 1.95%.
There were two other sectors with gains over 1.0%.
The two sectors that lost ground were the defensive sectors.
Utilities stocks dropped 0.43% and the consumer staples sector fell 0.08%.
My scans were pretty well balanced last night with 22 names on the bullish list and 21 on the bearish side.
The barometer edged up slightly once these results were taken into account, moving to -15.1 from -17.3.
Even thought there were over 40 stocks to choose from between the two lists, there were only a few scenarios that got my attention. The one I feel gives us the best risk/reward scenario is a bearish play on Devon Energy (NYSE: DVN). The stock appeared on the bearish list and its fundamental ratings are pretty weak. The EPS rating is a 31 and the SMR rating is a D.
Devon has been trending lower since April and a trend channel has formed that defines the different cycles within the overall downward trend. The stock just hit the upper rail of the channel and it is overbought. The last time both the RSI and the stochastic readings were in overbought territory was in September and that was just before the stock dropped over 30%.
Buy to open the January week 5 25-strike puts on DVN at $2.00 or better. These options expire on January 31. In order for these options to double the stock will need to fall to $21.00. The stock was below the $20 level back at the end of October. I suggest a target gain of 100% with a stop at $24.70.
— Rick Pendergraft
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