Friday was a quadruple-witching day with different options and futures contracts expiring and those days can lead to increased volatility. We didn’t really see that, but the indices did all finish lower on the day.
One interesting thing was how the main three indices moved higher in the final hour to trim their losses while the Russell dropped in to the close after trading in positive territory for most of the day. This late day action could have been triggered by expiration day.
The Nasdaq was the best performer with a loss of 0.07% and the S&P was next with a loss of 0.35%. The Dow and the Russell each lost 0.41% on the day.
The sectors were evenly split on Friday, five moved higher and five moved lower. The materials sector led the way with a gain of 0.45% and the consumer staples sector rallied 0.22% as the second best performer.
The energy sector dropped 1.67% and that was the worst loss of the bunch. The utilities sector fell 0.92% as the second worst performer.
After a neutral reading and three straight positive readings, the scans turned negative on Friday. There were 68 bearish signals and only two bullish signals.
The barometer dropped sharply and turned from 15.7 to -15.5 as a result of the negative scans.
Even though there were 68 stocks and ETFs to choose from on the bearish list, I wasn’t crazy about any of the setups. The stocks that showed a downward trend had good fundamental readings. As a result I went to my weekly scans where there were a number of bearish signals as well. One stock on the list that jumped out was EOG Resources (NYSE: EOG). The company’s fundamental indicators are average with an EPS rating of 51 and an SMR rating of a C.
The weekly chart shows how the stock has been trending lower over the last two years and if we connect the highs from 2018 and 2019 we get a downwardly sloped trend line. The stock just hit the trend line two weeks ago and turned lower this past week. We also see that the weekly stochastic indicators made a bearish crossover this past week.
Buy to open the February 55-strike puts on EOG at $6.60 or better. These options expire on February 19, 2021. I suggest a target gain of 100% and that means the stock will need to drop to $41.80. There could be some support in the $40 area, but we don’t need the stock to get that low to hit our target. I recommend a stop at $55.50.
— Rick Pendergraft