Trade of the Day: Mattel (MAT)

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Our index indicators are giving bullish to neutral readings, unchanged from a week ago. Even with the snapback rally Thursday afternoon, sentiment remains on the negative side, so the indexes must be considered in a short-term bearish mode. Unlike last week, stocks face a bigger hurdle than just a single strong day to reverse their bearish trend. The Dow Industrials must rise back above 16,970 to return to a bullish trend. The S&P 500 must rise above 1,975, and the Nasdaq above 4,490.

Our internal indicators are confirming the weakness in the indexes. The 200-day Moving Averages Index remains strongly bearish and, in fact, is at its lowest reading since 2011, coincident with the last time the indexes were in a primary bearish trend. This indicator has a solid track record of foreshadowing steep downturns.

The Advance/Decline Index remains neutral, but the Cumulative Volume Index has also turned bearish. Only one of the nine major S&P sector funds is bullish, unchanged from last week. And volatility indexes continue to move higher.

With stock volatility increasing, Treasury bonds (TLT) are in a renewed uptrend. TLT is building on its recent rebound and is solidly bullish, and will remain so by staying above $115.40. Strength in TLT is a positive for continued low interest rates. Junk bonds are performing more like stocks, which is generally the case, and they will remain bearish and really don’t have strong chart support until the $39 area.

The U.S. dollar remains bullish and, in turn, commodities remain bearish. Copper, gold and oil are all in solid bearish trends. While market sentiment certainly plays into the trends for those three “majors,” agricultural commodities are also bearish, though they have seen a small rebound over the past few days. Global deflation concerns are certainly in play, but lower commodity prices and lower interest rates at some point will be beneficial for major economies and stock markets.

With stock indexes and indicators remaining in short-term bearish positions, options traders should continue to lean toward buying put options and reducing call holdings. Don’t go overboard and sell your entire portfolio, as the intermediate-term trend for stocks is still bullish to neutral. However, caution continues to be the watchword.

Here’s a put option on a well-known Nasdaq company with a troubled stock that will allow you to profit on the downside.

Buy the Mattel (MAT) Nov 30 Puts (MAT141122P00030000) at current levels (around $0.85), and take profits if the stock price hits $29 or the option price hits $1.80, which would be a 111% profit. Exit if the stock price closes above $32.30.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/10/trade-of-the-day-mattel-mat-nasdaq/.

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