The stock market continues to bounce back from early-month weakness, and, as October ends and we move into the first week of a new month, that trend should continue.
Our index indicators are giving bullish readings, an upgrade over last week’s bullish to neutral. The major reason for the upgrade is the Dow Industrials joining the S&P 500 and Nasdaq in primary bullish trends, after lagging behind those two indexes last week. The bullish trend remains in force as long as the stock market indexes remain above their 50-day moving averages, which for the Dow is currently at 16,820, for the S&P 500, 1,955, and the Nasdaq, 4,445.
Our internal indicators are improving along with the indexes, but as was the case last week, are not completely reflecting the same level of bullishness. The 200-day Moving Averages Index has improved to level 3 bullish from a bearish reading, the Advance/Decline Index remains level 1 bullish, and the Cumulative Volume Index has improved to level 2 bullish. Seven of the nine major S&P sector funds are in primary bullish trends, up from five of nine last week. And volatility indexes continue to drift lower.
With the improvement in the stock market during the past couple weeks, Treasury bonds (TLT) have been pulling back. But TLT remains bullish and will continue to be so by staying above $118. Bullishness in TLT implies low interest rates and continuing central bank support for the markets and global economies in general. But the strength in TLT has not extended to junk bonds (JNK), as JNK remains in a primary bearish trend.
The U.S. dollar (UUP) looks like it has completed its recent pullback and is trending higher again. It remains bullish by staying above $22.50. In conjunction with the improving dollar, commodities continue to slide. Copper (CU) and oil (USO) remain bearish but have trended sideways for the past couple weeks. We’ll see if that continues with the dollar possibly finding renewed strength. And according to gold (GLD), it will find that strength. After rallying earlier this month, GLD has reversed course and is again flirting with a possible collapse.
As recent events have shown, keeping money on both sides of the stock market is a prudent course of action. So continue to hold puts in your portfolio as well — but, with stock indexes building on their bullishness, today’s recommendation is for a call option.
Buy the Yahoo! Inc. (YHOO) Dec 49 Calls (YHOO141220C00049000) at $1.00 or lower. After entry, take profits if the stock price hits $48.90 or the option price hits $2.30. Exit if the stock price closes below $44.00. Note: There are several expirations available for the $49 strike in the December series; be sure you’re buying to open the regular monthly calls that expire on Dec. 22.
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