Stocks are enjoying a relatively positive week, and our indicators are saying that trend should continue. Our index indicators are giving bullish to neutral readings, unchanged from a week ago.
The Dow Industrials and S&P 500 remain above their 50-day moving averages, but the Nasdaq continues to trend below its 50-day average. Also, the Nasdaq has fallen into a bearish “lower highs, lower lows” chart pattern, an indication that it could be somewhat difficult for it to retake that average at 4,170. The Dow must stay above 16,300, and the S&P above 1,855, to maintain their bullish trends.
Our internal indicators continue to support the bullish trends of the indexes, as the 200-day Moving Averages Index, Advance/Decline Index and Cumulative Volume Index remain bullish. Eight of nine S&P sector funds are bullish, up from last week’s six of nine. Additionally, the Dow Transports and Dow Utilities are also bullish.
Long-term Treasury bond prices (TLT) remain in a bullish trend, and TLT staying above $108.60 will maintain that trend. Curiously, while long-term Treasury rates tend to be falling, 10-year rates are trending sideways, and 5-year rates are trending slightly higher. In other words, the yield curve looks to be flattening, generally a sign of a slower economy. No surprise there, as TLT has been saying exactly that for quite some time now. What is more curious is that 5-year rates are drifting higher, not exactly what the Fed intended with its monetary policy.
Commodities are trying to snap out of their recent slumber. Oil remains bullish and will continue that trend by staying above $36.40. Copper has bounced back above its 200-day moving average, but its 50-day moving average continues to lag in bearish territory. Gold continues to struggle but, as always, its movement could be for reasons not entirely related to the economy. Nevertheless, the combination of a primary bullish trend in long-term bonds while commodities struggle is a sign that faster economic growth is not on the way.
With our index indicators in a bullish to neutral position, options traders should continue a neutral weighting between bullish and bearish positions in stocks and options. Bullish in the event that the indexes regain their upward momentum, and bearish in the event that bonds and commodities prove to be right, and slower growth translates into equity weakness.
The stock behind this week’s options trade is rated as a “powerhouse” by system as being one of the most technically attractive of the stocks in my scans. Cooper Tire (CTB) has been in a steady uptrend, and the technical data indicate it will continue for the short-term.
As such, buy the Buy CTB June 28 Call options at 80 cents or lower (the stock price closed Thursday at $26.50). After entry, take profits if the stock price hits $28.90 or the option’s price hits $2.00. Exit if the stock price closes below $25.30 or the option price closes below 40 cents.
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