The indices got crushed again on Friday with two things bothering investors. First, Fed Chairman Powell didn’t make any promises to lower rates again when he spoke at the Jackson Hole Symposium.
Secondly, China announced new tariffs on U.S. goods as the trade war continues. After the close, President Trump announced more tariffs on Chinese goods, so we could see a rough day today as well.
[hana-code-insert name=’adsense-article’ /]The Russell took the biggest hit on Friday with a drop of 3.09% and the Nasdaq was close behind with a loss of 3.0%.The S&P fell 2.59% and the Dow suffered the smallest loss at 2.37%.
All 10 sectors were lower on the day, but there were two that got hit particularly hard.
The energy sector fell 3.35% as one of the new tariffs from China was on American oil and energy products.
The tech sector has been at the heart of the trade war from the beginning and it dropped 3.31%.
Those were the only two sectors that fell more than 3.0%.
The utilities sector dropped the least at 1.06% and the consumer staples sector fell 1.67% as the only other sector not to drop at least 2.0%.
My scans turned more negative after the declines. There were 87 names on the bearish list and five on the bullish list.
The barometer moved in to negative territory again after five positive readings. The final reading was -41.5, down from 9.4.
Given the number of options on the bearish side it should come as no surprise that today’s trade idea is a third straight bearish one. I suggested puts on Parsley Energy (NYSE: PE) back on August 14, but the stock was on the bearish list again last night. The fundamentals aren’t terrible with an EPS rating of 63 and an SMR rating of a B.
The chart is what really jumps out about Parsley with the downward sloped trend channel that has formed over the last four months. The stock hit the upper rail and its 50-day moving average on Thursday and then rolled over. The daily stochastic readings are in overbought territory and made a bearish crossover on Friday.
Buy to open the October 17.50-strike puts on PE at $2.20 or better. These options expire on October 18. In order for these options to double the stock will need to drop to $13.10. To reach that price the stock will need to reach a new low, but the lower rail should be down in that area in the next few weeks. I suggest a target gain of 100% with a stop at $17.10.
— Rick Pendergraft
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