Trade of the Day: Nordstrom (JWN)

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My index indicators are giving neutral to bullish readings, a massive upgrade from last week’s bearish to neutral. The rapidity with which the indexes have changed from bullish to bearish and back again points out how much influence computer trading has on daily market activity. Nevertheless, that is the nature of the market today, and it is the arena in which we must play.

Computer trading is mainly momentum driven, and that is the tact I take with my market outlooks. My first indicator is to look at the overall direction of the major indexes, determined by their key moving averages. After this week’s wild reversal from last week, the S&P 500 and Nasdaq have both returned to primary bullish trends, albeit just barely. They will remain bullish with the S&P 500 staying above 1,950 and the Nasdaq above 4,425. The Dow has yet to cross back above its 50-day moving average but should do so shortly. In addition to the other major indexes, the Dow Transports and Dow Utilities have also returned to primary bullish trends.

My internal indicators are improving along with the indexes, but it is important to note that they are not reflecting the same level of bullishness. The 200-day Moving Averages Index remains level-3 bearish, with a reading of 43%. The Advance/Decline Index has returned to level-1 bullish, but the Cumulative Volume Index remains level-2 bearish. Five of the nine major S&P sector funds are in primary bullish trends, and volatility indexes are moving lower.

With the improvement in the stock market, Treasury bonds (TLT) are pulling back from their recent strong rally. But TLT remains bullish by staying above $117.50. Bullishness in TLT implies low interest rates and central bank support continuing, which would also benefit stocks. Junk bonds (JNK) are improving, but JNK remains in a primary bearish trend.

The dollar (UUP) has pulled back from its recent strong rally but remains bullish. And as is generally the case with a strong dollar, key commodities copper (CU), gold (GLD) and oil (USO) remain bearish.

With stock indexes and indicators caught in the push/pull of computer trading, though moving more toward the bullish side, options buyers should begin to add some call options to your portfolio. But as the past few weeks have shown, keeping money on both sides of the market is a very prudent course of action. So continue to hold puts in your portfolio as well. And until volatility subsides further, continue to exercise caution with all new trades.

Today, I have a high-end retail stock that’s been in a steady uptrend in recent weeks, and my analysis indicates that looks to continue – at least for the short term.

Buy the Nordstrom (JWN) Dec 75 Call options at $1.15 or lower (JWN closed Thursday at $71.80). After entry, take profits if the stock price hits $75.50 or if the option price hits $2.70. Exit if JWN closes below $69.90.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/10/trade-of-the-day-nordstrom-jwn-computertrading/.

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