Stocks jumped on Monday as investors continued to gain confidence that the worst is over from the big declines earlier in the month. All four of the main indices saw significant gains.
The Nasdaq led the way with a gain of 3.62% and it was followed by the S&P with a gain of 3.35%. The Dow moved up 3.19% and the Russell tacked on 2.33% to round out the gains.
All 10 of the main sectors moved higher on Monday, but there were two that stood out with gains over 4%. The healthcare sector led the way with a move of 4.68% and the tech sector jumped 4.24%.
There were three sectors that failed to gain at least 2%.The energy sector gained 1.02% and that was the smallest gain of the bunch.
The industrial sector tacked on 1.46% and the financial sector gained 1.9%.
My scans produced another small total on Monday with four bullish signals and six bearish signals.
One interesting note about the bearish signals was that half of them were on Chinese internet companies.
With the large bullish results losing their importance in the calculation of the barometer, the indicator continued to fall. Last night’s reading was 13.7, down from 43.2 on Friday.
I mentioned the Chinese internet companies earlier and one of them is the subject of our trade idea for today. YY Inc. (Nasdaq: YY) appeared on the bearish list and its fundamental ratings are average. The EPS score is a 42 and the SMR rating is a B. In this case it is the chart that wins out.
What caught my attention about the chart was how the stock hit its 50-day moving average last Thursday and has since turned lower. The daily stochastic indicators were close to overbought territory and have now made a bearish crossover. The last couple of instances where the indicators made bearish crossovers preceded pretty sizable declines. In fact, the declines have been over 16% after the signal, not from the high.
Buy to open the May 55-strike puts on YY at $6.50 or better. These options expire on May 15. With the volatile market and the high option premiums, I suggest a target gain of 75%. A 16% decline from yesterday’s closing price would put the stock down around $43.75 and that would put the option close to our target. I suggest a stop at $57.00.
— Rick Pendergraft
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