Friday saw three of the four main indices drop, but the losses were a lot smaller at the end of the day than they were in the morning session. The Russell managed to post a gain of 0.22% after being in the red pretty solidly early on. The S&P suffered the worst loss at 0.18%, but it was down almost 1.0% in the morning. The Dow dropped 0.16% and the Nasdaq fell 0.10%.
Six of the 10 main sectors fell on Friday, but all 10 were in negative territory at one point. The healthcare sector suffered the worst loss at 0.69% and it was followed by the materials sector with a drop of 0.46%.
[hana-code-insert name=’adsense-article’ /]The financial sector led the way on the day with a gain of 0.28%.The communication services sector inched up 0.14% and that was good enough for the second best performance.
My scans turned in a third straight bearishly skewed result on Friday.
There were 46 names on the bearish list and seven on the bullish list.
That is the third straight result with the difference being in the negative -37 to -39 range.
The barometer dropped from -18.6 to -32.7 once these results were added in to the equation.
There were a couple of themes within the bearish list on Friday and one of them was the number of healthcare and biotech stocks on the list. That led me to today’s trade idea and that is a bearish one on the iShares Nasdaq Biotechnology ETF (NYSE: IBB). The fund was one of 13 names from the industry that made the bearish list.
We see on the daily chart that a trend line has formed that connects the highs from September ’18, March, and April. The IBB just hit that trend line last Thursday before turning lower on Friday. The fund saw its 10-day RSI and daily stochastic readings reach overbought territory last week before turning lower.
Buy to open the August 112-strike puts on IBB at $4.50 or better. These options expire on August 16. In order for these options to double the fund will need to drop to $103. The IBB bottomed at the $100 area in May, so it won’t have to break that low for these options to double. I suggest a target gain of 100% with a stop at $111.00.
— Rick Pendergraft
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