Friday was a bit of an odd day for the indices. The Russell opened with the worst loss of the bunch, but managed to rally and log a small gain of 0.07%. The other three opened with small losses and headed in different directions from there.
The Nasdaq fell 0.42%, but it traded in positive territory most of the day before a late selloff took it in to the red. The S&P and Dow turned lower and ended up finishing at their lows of the day. The S&P dropped 0.68%, and the Dow lost 0.75%.
Nine of the 10 sectors finished lower with the utilities sector eking out a gain of 0.02% as the only one in the black. The materials sector fell 0.09% as the second best performer.
The tech sector dropped 1.03% and that was the worst performance of the bunch. Financials fell 0.88% and the industrial sector was right behind it with a loss of 0.85%.
My scans remained negatively skewed on Friday with 63 bearish signals and only four bullish signals.
The barometer inched up a little from its extreme low on Thursday, climbing to -99.0 from -104.8.
With the vast majority of signals coming on the bearish side, it was hard not to find several where I liked the setup. In the end I felt like a bearish play on Continental Resources (NYSE: CLR) gives us the greatest odds of success. The company’s fundamental ratings are pretty bad with an EPS rating of 7 and an SMR rating of a D.
The daily chart shows how the stock has been trending lower over the last five months with a trend channel forming to define the various cycles within the overall downward trend. The stock is just shy of the upper rail currently. Both the RSI and the stochastic readings were in overbought territory on Thursday, but they both rolled over with the loss on Friday.
Buy to open the January 17.50-strike puts on CLR at $3.10 or better. These options expire on January 15, 2021. I suggest a target gain of 75% and that means the stock will need to drop to $12.05. The stock dipped below the $12 level in late October, so it won’t have to break that low to hit our target. I suggest a stop at $16.50.
— Rick Pendergraft
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