Trade of the Day: Tenet Healthcare (THC)

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Our index indicators are giving bearish readings, which is more in line with the general market trend than the occasional bullish readings such as we saw last week. As we suggested might happen, the Dow has fallen into a bearish “lower highs, lower lows” chart pattern. The S&P 500 and Nasdaq have not followed that trend, as both of those indices are trading in volatile but sideways channels. To break its current pattern, the Dow must rally back above 17,800. And all three indices remain bearish if they are trading below their 50-day moving averages, which for the Dow is at 17,540, the S&P 500, 2030, and the Nasdaq, 4675.

Our internal indicators have also fallen back into more bearish modes. The 200-day Moving Averages Index remains level 1 bearish, and the Cumulative Volume Index has fallen back to level 2 bearish. The Advance/Decline Index remains level 1 bullish. For reference, level 1 is the strongest reading, and level 3 is the weakest. Four of the nine major S&P sector funds are bullish, down from seven a week ago. Volatility indices have moved higher over the past week, which is more in line with the underlying trend.

Treasury bonds (TLT) continue to rally with the market trend of increased volatility. TLT has a long way to go before falling out of its bullish trend, and until it does it will continue to draw in money seeking a safe haven. The dollar (UUP) is also moving higher and similar to TLT, has a lot of room to play with before turning bearish. An encouraging sign might be found in junk bonds (JNK), which have been rallying for the past month and may be breaking out of their bearish trend. A lot of the current market volatility has been blamed on potential junk bond defaults, so a rally there is encouraging.

Commodities continue to slide, and this past week that slide was rejoined by gold (GLD). For the past month, gold had been about the only bright spot in the commodity universe, but it has pulled back sharply over the past few days. However, this can be taken as a positive sign. Along with the rally by JNK, it could be a sign that the fear of a massive financial meltdown caused by the oil price collapse is decreasing. But the market trend for oil (USO) remains bearish for now.

With major U.S. stock indices falling back into mostly bearish trends, options traders should continue to add bearish positions. But overall market action has been more of a volatile sideways pattern than straight down, so bullish positions are also in play. While volatility continues to trend higher, some signs are suggesting that trend might be about to abate. Nevertheless, until a bullish or bearish market trend becomes firmly established and replaces the current whipsaw action, it is best to take smaller positions than you normally do, but don’t sit out completely.

In fact, in my Maximum Options  service, I opened more trades than usual this week, but the key is to keep your positions small. With that in mind, I’ve got a new put option to play the current market trend.

Buy the Tenet Healthcare (THC) Mar 40 Puts (THC150320P00040000) at $1.40 or lower. After entry, take profits if THC stock price hits $38.70 or the option price hits $3.30. Exit if THC stock price closes above $45.70.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/market-trend/.

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