Our index indicators remain bullish, but our internal indicators aren’t as positive as they have been.
Our index indicators continue to give bullish readings, unchanged from last week. However, with the weakness seen over the past several days, some signs of possible change are appearing. Most prominent of those signs come from our internal indicators. The 200-day Moving Averages Index has fallen back to bearish, and the Advance/Decline Index is bullish to neutral. The Cumulative Volume Index remains bullish.
Even with the current weakness, the index’s 50-day moving averages have continued to move higher. This is an important trend as those averages represent the first line of defense in the ongoing bull market. For the Dow, its 50-day moving average is at 15,680, for the S&P 500, 1760, and for the Nasdaq, 3910. Until the indexes fall below their 50-day moving averages, the bull market remains intact.
Returning to our internal indicators, eight of nine S&P sector index funds remain bullish. But similar to a week ago, it is the one non-bullish S&P sector that is becoming a cause for concern, as it is the Utilities sector. That coincides with the Dow Utility Average also being bearish, which in turn results in a caution sign according to Dow Theory.
Weakening utility stock prices infers rising interest rates, a trend which is also seen in long-term U.S. Treasuries. The iShares Barclays 20+ Year Treasury Bond ETF (TLT) has again fallen to key support in the $102 area. That support has held since first being established in August, but TLT’s chart pattern is looking more and more like it is about to break down.
Of course, weakness in TLT is mostly a result of ongoing speculation as to when the Fed will begin tapering its massive bond buying program. Friday’s employment numbers are being awaited by many traders as a key determinant. But until the Fed actually provides a definite date and plan for tapering, the best course of action is to continue to trade as if the Fed’s liquidity pump will continue. That means leaning more toward bullish positions.
Recommendation: Buy Immunomedics (IMMU) Feb. 5 Call options at $0.75 or lower. After entry, take profits if the stock price hits $5.20 or the option price reaches $1.20. Exit if the stock price closes below $4.10 or the option price falls below $0.60.
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