Our index indicators continue to give bullish readings, unchanged from last week. As we expected, short-term bullishness was supported by the first week of a new month. Now, however, things might get a bit more unsteady, as September historically has not been a good month for stocks. Nevertheless, the bullish trend will remain in place as long as the major indexes stay above their 50-day moving averages. For the Dow Industrials that level is currently at 16,870, for the S&P 500, 1,965, and the Nasdaq, 4,450.
Our internal indicators continue to support the bullish trend on the indices, as the 200-day Moving Averages Index, Advance/Decline Index and Cumulative Volume Index are all in bullish positions. However, eight of the nine major S&P sector funds are in bullish trends, one less than last week. The weak sector is Energy, which could a sign that geopolitical tensions may be holding slightly less sway this week than last. But that possibility is not being seen in volatility indexes, which have risen steadily over the past week.
Evidence of easing tensions is being seen in U.S. Treasuries (TLT), which have pulled back sharply over the past week. TLT remains in a bullish trend but is now much nearer to its 50-day moving average of $115.30. Of course, TLT could bounce higher just as easily as it could continue moving lower, depending almost entirely on the market’s mood. For now, the threat of higher U.S. interest rates, which would also drive the price of TLT lower, remains on the back burner. TLT also did not respond favorably to recent positive European monetary actions. But the U.S. dollar did, spiking higher to continue a strong rally that began in July. Junk bonds are following Treasuries lower. They have fallen below their 200-day moving average for the second time in the past few weeks and could soon undergo a serious correction.
When the dollar is strong, commodities are generally weak, and that continues to be the case now as it was last week. Copper bounced off of its 200-day moving average but remains in a downtrend. Oil continues its attempt to stabilize following a two-month selloff but remains in a bearish trend. Gold looks to have failed in its own stabilizing effort and has re-established its downtrend. Just as geopolitical tensions likely were the reason for the recent mini-rebounds in oil and gold, the easing of those tensions can be seen in their current chart patterns.
With stock indexes maintaining their momentum, and with bonds and commodities struggling, stocks are pretty much the only game in town, and options traders should continue to weight more toward bullish positions. But don’t go overboard. As the calendar moves deeper into September and October, increasing caution should be the watchword.
As such, even though indicators right now support a bullish trend, I’ve got a new counter-trend trade for you on a big-name resort chain that my mix of technical and fundamental analysis indicates will take a dip in the next few weeks.
Buy the Wynn Resorts (WYNN) Dec 150 Put options at $1.15 or lower (WYNN closed Thursday at $184.7). After entry, take profits if the stock price hits $171.40 or the option price hits $2.80. Exit if the stock price closes above $191.30.
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