Trade of the Day: NetApp (NTAP)

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Our index indicators are giving neutral readings, a downgrade from last week’s bullish readings. The reason for the downgrade is the Dow Industrials and S&P 500 have again slipped below their 50-day moving averages (and the Nasdaq is about to). However, this has become a semi-regular occurrence over the past few months and, as we’ve mentioned several times, the more important support is at the 200-day moving averages. For the Dow, that is currently at 17,350, for the S&P 500, 2,005, and for the Nasdaq, 4,620.

Our internal indicators continue to signal that uncertainty is currently ruling the stock market, as the 200-day Moving Averages Index has fallen to level-3 bearish. The Advance/Decline Index remains level-1 bullish, and the and Cumulative Volume Index remains level-3 bearish. For reference, level 1 is the strongest reading, level 3 the weakest. Only two of the nine major S&P sector funds are level-1 bullish, down from five a week ago. And volatility patterns, while overall still compressing, have crept higher over the past week.

Treasury bonds (TLT) continue to be bullish, even with a pullback over the past few days. With recent geopolitical events reminding everyone that the world still is not a safe place, and economic growth tepid at best, TLT should eventually continue its rally. The dollar (UUP) has pulled back following its huge rally, but similar to TLT, this pullback is most likely due to profit taking. Nothing has changed so dramatically as to fundamentally alter the bullish trends in TLT and UUP.

Commodities continue to struggle, even with recent strength in gold (GLD) and oil (USO) the past few days, which is most likely due to geopolitics, not to a change in the global economic outlook. We mentioned last week that our internal indicators are showing the U.S. economy to be on pace for its poorest showing since 2008. That hasn’t changed this week. Going forward, profits and growth will increasingly become the market’s chief concerns.

With the major stock indexes falling to neutral readings and economic indicators struggling, options traders should continue to evenly weight between bullish and bearish positions. Fed-generated momentum could continue to push stocks higher, but slowing growth and geopolitical events could cause the market to make an about-face very quickly.

That’s why today, I’ve got a put option on a stock that’s showing weak technicals, suggesting it will move lower regardless of what the Nasdaq broader market are doing.

Buy the NetApp (NTAP) May 35 Put options at $1.00 or lower.

After entry, take profits if NTAP price hits $33.00 or the option price hits $2.50. Exit if the stock price closes above $36.90.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/trade-of-the-day-netapp-ntap-nasdaq/.

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