Stocks bounced back from Monday’s massive selloff with day of big gains on Tuesday. Three of the four main indices saw significant gains, but the Russell took a loss of 0.24%.
The Nasdaq was the top performer with a gain of 1.43% and the S&P managed a gain of 1.01%. The Dow lagged those two a little, but it still logged a gain of 0.66%.
All 10 of the main sectors moved higher on Tuesday and the tech sector led the way with a gain of 1.91%.There were three other sectors that gained over 1% – the financial sector (1.17%), the communication services sector (1.15%), and the materials sector (1.13%) all logged sharp gains.
The smallest gain of the bunch was the consumer staples sector and it moved up 0.13%.
The utilities sector moved up 0.41% and that was the second smallest gain.
My scans finally produced a positively skewed result last night with 29 names on the bullish list and only three names on the bearish side.
The barometer jumped in to positive territory once these results were added in to the equation. The final reading on Tuesday was 7.4, up from -12.4 on Monday.
Today’s trade idea is from the bullish list, but it isn’t on a stock or equity ETF. It is actually on the iShares iBoxx High Yield Corporate Bond ETF (NYSE: HYG). Even though it is a bond ETF, it has a tendency to track more closely with the equity indices.
The HYG has been trending higher over the last eight months. A trend channel has formed over the last six months and the fund just hit the lower rail of the channel. The daily overbought/oversold indicators both hit oversold territory on Monday and both indicators reversed on Tuesday.
Buy to open the March 87-strike calls on HYG at $1.15 or better. These options expire on March 20. In order for these options to double the fund will need to reach $89.30. The fund will only need to move up 1.65% for these options to double in value based on where it closed on Tuesday. I suggest a target gain of 100% with a stop at $87.25.
— Rick Pendergraft
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