Trade This Stock’s Drop for 75% Returns in Eight Weeks

The selling that started on Thursday carried over in to Friday and all four indices fell once again. The losses on Friday caused all four indices to suffer weekly losses as well.

As for Friday’s losses, the Russell took the worst hit with a drop of 1.52%. The Nasdaq fell 0.94% and the Dow lost 0.68%. The S&P took the smallest loss at 0.62%.

Nine of the 10 sectors lost ground on Friday with only the consumer discretionary sector finishing in the black with a gain of 0.18%.

For the week, six sectors moved higher and four moved lower.

The tech sector fell 1.21% on Friday and the healthcare sector dropped 1.10%.

Those were the only two sectors that lost more than 1.0% on the day.

Premium Content

My scans remained negatively skewed on Friday with 30 bearish signals and only two bullish signals.

The barometer did climb a little once the figures were added in to the calculation. Friday’s reading was -47.6, up from -65.5 on Thursday.

Not surprisingly, with only two stocks on the bullish list, I didn’t find anything I liked there. That left me with only bearish trade ideas to choose from. The one that stood out to me the most was on PDC Energy (Nasdaq: PDCE). The company’s fundamental ratings are below average with an EPS rating of 29 and an SMR rating of a C.

Looking at the chart we see a trend line connecting the highs from January and June and now the stock is butting up against that trend line currently. The daily stochastic indicators are in overbought territory and made a bearish crossover on Friday. The last time we had such a development the stock dropped over 40% in three weeks.

Buy to open the September 17.50-strike puts on PDCE at $3.70 or better. These options expire on September 18. I suggest a target gain of 75% and that means the stock will need to drop to $11.00. The stock was down to $10 as recently as May, so it won’t have to break that low to hit our target. I recommend a stop at $16.75.

— Rick Pendergraft

Collect up to 5 dividend checks per week [sponsor]
Hi, I'm Tim Plaehn, and I just did the math in my own, real-money portfolio. I'll be collecting 70 dividend checks this quarter. That's nearly 5 per week on average. Automatically… no trading, no options, no work. You don't need a lot of money. You can be retired or near retirement... Either way, I'll show you my #1 plan to quickly collect dividends like clockwork from high-quality, cash-flowing business. Click here to learn how to collect up to 5 dividends a week.
Premium Content

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.