The headlines read that stocks moved higher on Monday, but that isn’t entirely true as only three of the four indices moved higher. The Russell opened lower and remained lower throughout the day. It finished with a loss of 0.91%.
The Dow also opened in the red, but it rebounded to post a gain of 0.32%. The Nasdaq was the top performer with a gain of 1.23% and it was followed by the S&P with a move of 0.70%.
Six of the 10 sectors posted gains on the day while four moved lower. The tech sector led the way with a gain of 1.97%. The second best performance was a bit of a surprise, but the consumer staples sector rallied by 1.06%.
The financial sector registered the worst loss for a second straight day and this time it was a decline of 1.29%. The energy sector dropped 0.96% as the second worst performer.
My scans turned in their ninth straight negative result on Monday, but the size difference between the two lists was the smallest during the streak. There were 20 bearish signals and 11 bullish signals.
The barometer continued to climb from the extreme low reading last Thursday. The reading last night was -54.1 and that’s up from -129.3 in only two days.
After four straight bearish trade ideas, I felt like we needed some balance and a bullish trade idea. Unfortunately I didn’t like any of the setups from the bullish scan, but I also didn’t like but one setup on the bearish list. Instead of using any of the signals from last night, I have a bullish idea on Lumentum Holdings (Nasdaq: LITE). The stock was on my radar for its weekly chart, and because it has an EPS rating of 95 and its SMR rating is an A.
We see how the stock has been moving higher with a trend channel defining the different cycles within the overall upward trend. The stock has dropped since the first of the year and it’s close to the lower rail. The 52-week moving average seems to be acting as support at this time and the lower rail should serve as a secondary support level. We see that the weekly stochastic indicators are in oversold territory for only the third time since the beginning of 2019. In each of the two previous instances, the stock has rallied sharply over the next few months.
Buy to open the June 72.50-strike calls on LITE at $12.10 or better. These options expire on June 18, 2021. I suggest a target gain of 100% and that means the stock will need to reach $101.70. The stock was up above $110 back in January, so it won’t have to break to a new 52-week high to reach our target. I recommend a stop at $78.00.
— Rick Pendergraft
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