Stocks moved higher in Friday’s abbreviated session and all four indices moved up in the process. By most accounts Black Friday shopping was more muted this year as consumers stayed home more than they have in years past. Retailers are counting on internet sales to make up the difference.
The Nasdaq led the way with a gain of 0.92% and it was followed by the Russell with a move of 0.56%. The S&P tacked on 0.24% and the Dow inched up 0.13% on the day.
Even though the indices all moved higher, the sectors were evenly split with five moving higher and five moving lower.
The energy sector continued to be the most volatile group and on Friday it suffered the biggest loss at 1.17%. The utilities sector fell 0.99% and that was the second worst performance.
The healthcare sector led the way on Friday with a gain of 0.92% and it was followed by the communication services sector with a gain of 0.64%.
My scans turned more bearish on Friday with 124 bearish signals and 15 bullish signals.
After climbing considerably for the last week, the barometer dropped back down on Friday. The final reading was -50.4, down from -15.0 on Wednesday.
Believe it or not it was a toss-up on whether today’s trade idea would be a bullish one or a bearish one. Despite the overwhelming number of bearish signals, there were only a few trade setups that I liked on both sides. Ultimately I felt a bearish idea on BorgWarner (NYSE: BWA) gave us the greatest odds of success. The company’s fundamental ratings are slightly below average with an EPS rating of 35 and an SMR rating of a C.
The chart shows how the stock has been trending lower over the last three months with a series of lower highs and lower lows. The stock just hit the trend line that connects the highs from September and October, and has since turned down a little. The stochastic indicators are in overbought territory and made a bearish crossover on Friday.
Buy to open the January 42.50-strike puts on BWA at $4.20 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 $35.15. The stock was below that level at its October low, so it won’t have to break that low to hit our target. I suggest a stop at $41.00.
— Rick Pendergraft
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