Stocks snapped their two-day losing streak on Wednesday with all four indices moving higher on the day. Two of the four were in positive territory for the entire day while the other two opened slight lower and then rallied.
The two that opened lower would also end up being the top performers on the day—the Russell (+2.35%) and the Nasdaq (+1.19%). The Dow and S&P posted matching gains of 0.93%.
Nine of the 10 main sectors moved higher with only the utilities sector losing ground, dropping 0.84%.
There were seven sectors that gained over 1.0% on the day and they were led by the materials sector with a gain of 1.82%. The energy sector moved up 1.4% as the second best performer and the financial sector jumped 1.39% to garner third place honors.
My scans turned in their first positive result in 13 trading days. There were 45 bullish signals and 20 bearish signals generated on Wednesday.
The barometer jumped from -38.9 to -15.4 once these results were added in to the calculation.
While it was nice to get a positive result for a change, there was a disturbing pattern regarding the stocks on the bullish list. There were far more stocks with poor fundamental ratings than ones with good ratings. The opposite was the case with the bearish list, the vast majority of those stocks had good fundamental ratings.
With the above statement in mind, I have a bullish trade idea for you today, but the fundamentals are not what I usually look for in a bullish trade. The company is American Airlines Group (Nasdaq: AAL) and it scores a 10 on its EPS rating. It doesn’t have an SMR rating because the ROE isn’t calculable due to the company losing money.
Since the fundamentals are so poor, this trade is all about the chart and what we see is an upwardly sloped trend channel guiding the stock higher over the last six months. The stock just hit the lower rail of the channel and the stochastic indicators made a bullish crossover while in oversold territory. The RSI had also reached oversold territory before moving out yesterday.
Buy to open the June 19-strike calls on AAL at $2.95 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 $24.90. The stock was above the $25 level in March, so it won’t have to break to a new high to reach our target. I suggest a stop at $19.00.
— Rick Pendergraft
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