Equities jumped at Monday’s open in sync with a massive buy order for stocks in the Dow Jones Industrials Average…and then essentially marched in place the rest of the day. It was as if you let an army of people into your foyer one morning, expecting them to fan out throughout your house, but instead they just stood around, acting bored.
Volume was light, and there were no specific catalysts behind the move higher, though you could make the argument that the buoyant move stemmed from a dovish take on Federal Reserve chief Janet Yellen’s comments late Friday.
I actually think it was more structural in nature. The S&P 500 bounced off its 125-day moving average late Friday, as it has done so many times in the past three years, and Monday amounted to some big fund’s algorithmic response to that development.
Chinese equities also rallied, but at least we really know why. People’s Bank of China honcho Zhou Xiochaun noted that inflation was slowing “a little too quick” and that China would have to watch downward pressure on prices. He further stated that China has room to act on both rates and quantitative measures. China also unveiled some measures to help housing.
Elsewhere in the world, the situation in Yemen has the potential to become a proxy war between Sunni Saudi Arabia and Shia Iran and escalate tensions in the region. No wonder crude oil prices rose, as the risk premium swelled.
Back here at home, the good news was that pending home sales were reported better than expected. The industry benchmark index rose to 106.9; its highest point since June 2013. February pending home sales came in a +3.1% versus consensus of +0.3%, and the prior month figure was revised +1.2% from +1.7%. It’s nice to have some data come in stronger than expected for once.
Today I’m recommending a bullish trade on Altria Group Inc (MO), the largest maker of tobacco products in the United States, led by the Marlboro brand. It’s a reprehensible business from a social, health and cultural perspective, but addictive products do tend to be reliably profitable, so what is an investor to do?
Altria is heavily oversold and tends to do well in late March and April historically, and it is back to its 100-day average, a level at which it has reliably rebounded in the past. The stock is pretty expensive on a price/earnings basis, but it is considered one of the most reliable performers in the world and thus deserving of a premium valuation.
MO shares milled around on Monday before rallying 0.4%. They look good for a rebound. Buy MO at $51 limit, good till canceled, for target $54.10 (set up to sell all there). Set a stop at $48.50 limit, good till canceled.
Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.
