Our index indicators are giving bullish readings for the third consecutive week, as the volatility we saw earlier this year continues to die down. And the indexes have moved far enough above their 50-day moving averages for those to once again act as important support levels. For the Dow Industrials, that average is currently at 17,685; for the S&P 500, 2,050; and for the Nasdaq, 4,740.
The Dow and S&P 500 might be running into some short-term resistance, so these averages may come into play soon. The Nasdaq, however, has already blown through resistance and looks ready to return to levels last seen 15 years ago.
Our internal indicators confirm the bullish action of the indexes. The 200-day Moving Averages Index is level 3 bullish, and the Cumulative Volume Index and Advance/Decline Index are level 1 bullish. Level 1 is the strongest reading, level 3 the weakest. Seven of the nine major S&P sector funds are level 1 bullish, unchanged from a week ago. As we mentioned last week, volatility has settled down, which is evident by the iPath VIX Short-term Futures ETN (VXX) seeing its 50-day moving average trend downward for the first time since December.
In conjunction with the easing volatility, Treasury bonds (TLT) continue to pull back. TLT fell below its 50-day moving average a week ago, but it remains safely above its 200-day average. Given the rapidity of TLT‘s recent rise, for now the current pullback should be viewed simply as a correction. Recent U.S. economic reports have been underwhelming, which usually would cause TLT to rally. The U.S. dollar (UUP) has not followed TLT lower and continues to carve out a trading range in the $25 area.
Commodities are improving slightly overall, but key commodities continue to struggle. Oil (USO) has stabilized but has not retaken its 50-day moving average. Until it does, economic growth will be questioned. Gold (GLD) continues to plunge, indicating that inflation is not on the radar, to the dismay of the world’s central bankers. Economic growth is often accompanied by an uptick in inflation.
Two of the major indexes are up against some overhead resistance, so some bearish positions should also be part of your options portfolio. But with the major stock indexes retaining bullish readings and volatility indexes continuing to move lower, options traders should lean toward bullish positions overall.
Here’s one such bullish trade from the strongest market index: the Nasdaq.
Buy the Advanced Micro Devices, Inc. (AMD) July 3.50 Calls (AMD150717C00003500) at $0.27 or lower. After entry, take profits if the stock price hits $3.50 or the option price hits $0.50. Exit if the stock price closes below $2.90.
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