The rally from Wednesday afternoon carried over to Thursday and we saw all four major indices move higher. This morning on Bloomberg the host referred to it as the “everything rally” as stocks, bonds, oil, and gold were all moving sharply higher.
There was a little bit of a change in leadership among the indices as the S&P led the way with a gain of 0.95% and it was followed closely by the Dow with a gain of 0.94%. The Nasdaq had led the way for the last few days and yesterday it moved up 0.80%. The Russell experienced the smallest move, but still tacked on 0.57%.
[hana-code-insert name=’adsense-article’ /]All 10 sectors moved higher on Thursday with four gaining over one percent.Oil jumped 5.8% on the day and that helped the energy sector tremendously with a gain of 2.15%.
Oil jumped after the news came out that Iran had shot down a U.S. drone.
The industrial sector jumped 1.65% and that was the second best performance.
Tech (+1.43%) and materials (+1.27%) were the other sectors to move up more than one percent.
As for the lagging sectors, the financial sector experienced the smallest gain at 0.40% and the healthcare sector only tacked on 0.44% as the second worst performer.
My scans remained negatively skewed last night, but the difference was only 10 with 17 names on the bearish list and seven on the bullish list.
The barometer continued to climb higher off of the low readings last week. The final reading for Thursday night was -23.8.
I hate to keep making bearish trade ideas day after day, but that is what I am seeing more than anything right now. Even though yesterday was a big up day for the indices, the last three trade ideas all moved in the right direction and they were all bearish idea. There were some decent stocks on the bullish list last night in terms of the fundamentals, but the charts didn’t really match the fundamentals.
With that in mind, I have another bearish trade idea today and it is on Pinduoduo (Nasdaq: PDD). The communication services company has terrible fundamentals with an EPS rating of 3 and an SMR rating of a D.
The daily chart shows how the stock has been moving lower since early March with a trend channel forming over the last three months. The stock is right at the upper rail of the channel and that rail is almost on top of the 50-day moving average. We saw the same scenario in mid-May right before the stock fell over 18%.
Buy to open the July 22.50-strike puts on PDD at $2.00 or better. These options expire on July 19. In order for these options to double the stock will need to drop to $18.50. The low on June 3 was $18.47, so this trade matches up with that price. The lower rail of the channel is lower than that and will be even lower in the coming days. I suggest a target gain of at least 100% with a stop at $22.00.
— Rick Pendergraft
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