The relative calm of the past few weeks is beginning to give way to increased volatility, a trend that looks like it will continue.
Our index indicators continue to give bullish readings, unchanged from last week. However, in a departure from the past few weeks, momentum has slowed as geopolitical tensions and economic questions begin to surface. Still, all three major indexes are maintaining their primary bullish trends. Those trends will remain in place if the Dow stays above 16,580, the S&P 500 above 1,885 and the Nasdaq above 4,200.
Our 200-day Moving Averages Index, Cumulative Volume Index and Advance/Decline Index internal indicators also remain bullish, along with nine of nine S&P sector funds, the Dow Transports and Dow Utilities. But one notable change is that volatility indexes have bounced off multi-year lows and are moving higher. This could simply be a return to more normal levels, or it could be the start of something more serious. It is something to keep an eye on.
Speaking of keeping an eye on things, anyone paying attention to long-term Treasury bond (TLT) trends this year should not be surprised that economic numbers continue to disappoint. TLT has defied predictions of rising interest rates by rallying strongly this year. The rally has included relatively high volatility on both the upside and downside. Over the past week, that volatility had subsided somewhat, but it returned on Thursday. TLT remains bullish by staying above $111.30.
Commodity trends reflect the geopolitical tensions. Oil has moved sharply higher, and gold has at least temporarily reversed a downtrend. Meanwhile, copper is pulling back but remains bullish. As it is an industrial metal, bullishness in copper is seen as a positive for economic growth. Copper remains bullish by staying above $22.85.
Today’s trade is in NuStar Energy L.P. (NS), a large-cap energy master limited partnership (MLP) that is in a strong uptrend thanks to the spike in oil prices and a general trend in capital flows towards dividend payers (NS has a hefty 7.3% yield). Here is my recommendation to take advantage of NuStar’s strength using call options.
Buy the NS Sep 65 Calls at 85 cents or lower (NS’s stock price closed Thursday at $60.25). After entry, take profits if the stock price hits $63.20 or the option price hits $1.60. Exit if the stock price closes below $59.60 or the option price closes below 60 cents. Note: This is a relatively thinly-traded option chain, so you may need to be patient to get established at my recommended entry. Avoid buying a large number of contracts at once to prevent wild price swings; instead, enter your orders in smaller lots of five or 10 contracts.
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