This Bullish Trade Targets a 50% Return in Eight Weeks

The indices rebounded on Thursday after the European Central Bank launched its own plans for curtailing the coronavirus’ impact on Europe’s economy. All four opened slightly lower and moved in to positive early in the trading session.

The Russell led the way on Thursday with a gain of 6.82% and that was far and away the top performance. The Nasdaq tacked on 2.3% and that was good enough for second place. The Dow moved up 0.95% and the S&P rounded out the gains with a move of 0.47%.

Seven of the 10 main sectors moved higher on the day while three moved lower.

The energy sector finally got a break and moved up 6.8%.

The consumer discretionary sector jumped 3.49% and that was good enough for second place.

Materials moved up 2.55% and financials gained 2.19%.

The three defensive sectors all moved lower on Thursday with the utilities sector taking the worst hit at 5.82%.

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The consumer staples sector fell 3.34% and healthcare dropped 2.05%.

My scans saw 60 names on the bullish list and only three bearish signals.

Even thought the bullish signals far outnumbered the bearish ones, the barometer fell to 64.8 from 88.9 as the big reading from Tuesday continued to lessen in its importance and weighting.

Today’s trade idea is another bullish one and that makes five straight days of bullish ideas. I keep looking for bearish ideas through various scans and searches, but everything is so oversold right now it is hard to find anything. Dynatrace (NYSE: DT) was on the bullish list last night and it has an EPS rating of 75. The company doesn’t show a return on equity at this time and thus doesn’t have an SMR rating.

The chart jumped out at me for two reasons. First, the fact that the stock has gained round for two days in a row stood out. Secondly, the low yesterday was down $17.10 and the post IPO low was $17.05 back in October. The stock looks to have found support at that level and looks primed to rally further.

Buy to open the May 20-strike calls on DT at $4.80 or better. These options expire on May 15. With the volatile market and the high option premiums, I suggest a target gain of 50%. In this instance, that means the options need to reach $7.20 and the stock needs to reach $27.20. I would also suggest a stop at $17.90.

— Rick Pendergraft

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.