Stocks soared on Tuesday after Mario Draghi announced that the ECB is ready to add stimulus to the European economy and President Trump announced that he and Chinese President Xi will meet ahead of the G20 summit next week. This set the positive tone for the day.
All four indices experienced big gains with the S&P (+0.97%) being the only one that didn’t gain at least one percent. The Nasdaq led the way with a gain of 1.39% while the Dow moved up 1.35% as the second best performer. The Russell rounded it out with a gain of 1.14%.
[hana-code-insert name=’adsense-article’ /]Eight of the 10 sectors moved higher with the defensive sectors moving lower.The consumer staples sector dropped 0.56% and the utilities sector fell 0.41%.
There were four sectors that gained at least one percent and they were led by the industrial sector which moved up 1.90%.
The tech sector tacked on 1.73% and that was good enough for second place.
The energy sector (+1.41%) and the financial sector (+1.30%) were the other two.
Despite the big gains, my scans turned even more bearish last night and that is due to the number of stocks in overbought territory at this time.
There were 65 stocks on the bearish list and 11 on the bullish list.
The barometer fell once these results were added in, falling from -29.9 to -35.9.
With only 11 stocks to choose from on the bullish list, none of them met the eye test. With that in mind I have another bearish trade idea today. American Airlines Group (NYSE: AAL) appeared on the bearish list and the fundamentals are mixed. The EPS rating is only a 32 and the SMR rating is a B. I had recommended puts on American once before back in February.
You can see how the stock has been trending lower since December, but the highs in 2019 connect nicely to form a downward sloped trend line. The stock just hit the line and both the RSI and the stochastic readings were in overbought territory. The stochastic readings made a bearish crossover yesterday.
Buy to open the August 34-strike puts on AAL at $2.75 or better. These options expire on August 16. In order for these options to double the stock will need to drop to $28.50. The most recent low is down at the $27 level, so the stock won’t need to break to a new low. I suggest a target gain of 100% with a stop at $33.50.
— Rick Pendergraft
[hana-code-insert name=’oxford 1′ /]