Our index indicators are giving bullish readings, an upgrade over last week’s bullish to neutral. The change occurred due to the Nasdaq’s move back above its 50-day moving average and its return to a primary bullish trend. It must remain above 4,135 for its bullish trend to remain intact. Meanwhile, the Dow Industrials and S&P 500 remain in their primary bullish trends. The Dow must stay above 16,430, and the SP 500 above 1,870, for those trends to continue.
Our internal indicators have also strengthened from a week ago, when they were showing signs of weakness. Primarily, the 200-day Moving Averages Index and Cumulative Volume Index have crossed back above their 50-day moving averages to join the Advance/Decline Index. Also, all nine SP 500 sector funds are bullish, up from seven of nine a week ago. The Dow Transports and Dow Utilities also are bullish.
Long-term Treasury bonds (TLT) continue their somewhat volatile uptrend. TLT pulled back over the past week, but the primary trend remains bullish. That trend will remain in place as long as TLT stays above $110.50. TLT has been changing directions on almost a weekly basis, so if that form holds, the coming week might see a rally in bonds. Amid this start-and-stop trending, a distinct “higher highs, higher lows” bullish chart pattern has been established, and looking at it, it is easy to see how the current Treasury the bond rally might continue to confound those who believe that interest rates have nowhere to go but up.
Key commodities built on their recent strength over the past week. Oil remains in a primary bullish trend, copper may soon join it and gold continues to build a support base in the $124 area, although it is still in a primary bearish trend. But, as we mentioned last week, higher commodity prices is not the kind of inflation the world’s central banks are trying to create. Until and unless incomes and spending pick up, higher commodity prices will translate into stagflation and slower growth.
With stock market indicators strengthening for the SP 500 and others, options traders should begin weighting slightly more toward bullish positions. But, given the unsteadiness of the current rally, it is best to not go overboard on the bullish side.
As such, I’ve got a put option for you today in a high-beta that’s been swinging wildly: Canadian Solar (CSIQ). My analysis shows that the stock is about to take another tumble.
CSIQ manufactures specialized semiconductors. The stock has been in a downtrend since making a double top early this year. It recently broke below support at $25 before snapping back, but should continue its downtrend if stocks show signs of weakness. Here is the best way to play more weakness in Canadian Solar:
Buy the CSIQ July 22 Puts at a suggested price of $1.20 ($120 per contract).
After taking the position, enter a good-til-cancelled contingent order to sell this option if the stock hits its target price of $20.60. That should give you an option price of about $2.80, for a 133% profit.
Close this position and cut losses if the stock closes above $26.50, when the option price should be about 70 cents.
A reminder that U.S. markets are closed Monday, May 26, to observe the Memorial Day holiday, so we’ll be back with the next Trade of the Day on Tuesday, May 27.
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