Earnings season got off to a good start on Tuesday with JPMorgan Chase and Johnson & Johnson both surprising investors in a positive way. There were also some indications that a Brexit deal may have been reached and that helped set the stage for moves to upside before the earnings news ever came out.
All four of the main indices saw significant gains with three of the four gaining over 1.0%. The Dow dipped slightly in the closing minutes to finish with a gain of 0.89%, otherwise all four would have surpassed 1.0%.
[hana-code-insert name=’adsense-article’ /]The Nasdaq led the way with a gain of 1.24% and it was followed by the Russell which tacked on 1.12%.The S&P gained an even 1.0%.
Eight of the 10 main sectors moved higher on the day with the defensive sectors lagging once again.
Consumer staples dropped 0.38% and utilities fell 0.31%.
The healthcare sector gained 1.75% to lead the way and it was buoyed by the news from Johnson & Johnson.
JNJ is the largest holding in the Healthcare Select Sector SPDR (XLV) in terms of percentage weighting. The materials sector finished with a gain of 1.71% and the financial sector moved up 1.34%.
My scans turned the tables last night with a negative result. There were 17 names on the bearish list and seven on the bullish list.
The barometer dropped from 34 to 19.3 after taking the new results in to account.
After three straight bullish trade ideas, I have a bearish idea for you today. FireEye (Nasdaq: FEYE) appeared on my bearish list last night and the company’s fundamentals are pretty bad. The EPS rating comes in at 15 and the SMR rating is a D. The company is scheduled to release earnings on October 29, so you will want to be aware of the earnings report.
The daily chart shows the stock moving lower over the last nine months with a trend channel defining the cycles within the overall downward trend. The gaps lower in February and again in July were both the result of negative earnings surprises. We are looking for another one.
Buy to open the December 16-strike puts on FEYE at $1.43 or better. These options expire on December 20. In order for these options to double the stock will need to drop to $13.14. The stock dropped below that level in August, September, and earlier this month. I suggest a target gain of 100% with a stop at $15.70.
— Rick Pendergraft
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