by Ken Trester | February 21, 2014 9:30 am
The stock market built upon its recent strength over the past week, and signs point toward a continuation of that trend.
Our index indicators are giving bullish readings, unchanged from last week. But we have still seen some improvement, primarily by the Dow Industrials, which over the past week have continued to consolidate the recent move back above their 50-day moving average. Recall that the Dow had just barely crossed above that average a week ago. The Dow now needs to stay above 16,000 to maintain its primary bullish trend, the S&P 500 needs to stay above 1,805, and the Nasdaq above 4,120.
Our internal indicators continue to reflect the bullishness that is being shown by the stock market indexes, as the Advance/Decline Index and Cumulative Volume Index are bullish, and the 200-day Moving Averages Index remains above both its 50-day and 200-day moving averages. Last week, this indicator made somewhat of a surprisingly strong move upward to cross back above both of those key moving averages. And as long as it maintains its current strength, its 200-day average will keep advancing back toward the 50-day average to form a bullish cross, which would be a very strong bullish confirmation.
Long-term Treasury bonds (TLT) continue to pull back, mainly due to Fed Chair Janet Yellen’s remarks stating that the Fed will continue to taper its bond purchases. That TLT had rallied due to unexpectedly weak economic numbers is one thing, but for bond traders to believe the Fed would change its tapering course only two months after it began is difficult to fathom. Chalk it up to trader mentality perhaps. As for TLT, a fall below $105.50 would signal that more bond-price weakness is in store.
With our stock market indicators in bullish mode and improving, options traders should continue to lean toward bullish positions such as buying calls. But continue to sprinkle in some puts as portfolio insurance, because as last month showed, corrections can and do happen when you least expect them.
Along with this emphasis on bullish plays, my trade for you today is in Pitney Bowes (PBI).
The company is a well-known software and hardware manufacturer, and also provides clients with various communications services ranging from direct mail and call centers to email, digital channels and mobile applications. Shares of PBI jumped up on the late-January earnings report, but since then they’ve plateaued and have room for an even higher run.
Buy the PBI Apr 26 Calls at 85 cents or lower. After entry, take profits if the stock price hits $26.90 or the option price hits $1.80. Exit if the stock price closes below $24.20 or the option price closes below 50 cents.
Thursday’s closing price for this option was $0.79, with open interest of 1,681 – so you should have no trouble getting a fill at my recommended entry price.
InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades to you each Friday. It’s the perfect ‘bridge’ between investing in ordinary stocks and the turbocharged world of options trading. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990. Try Power Options Weekly today and receive 2 weeks for the price of 1 for only $19.95.
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