Trading Advice of the Day: A.H. Belo (AHC)

For those seeking trading advice, our index indicators are giving neutral readings, a downgrade from last week’s bullish readings. The neutral reading is a result of the Dow falling below its 50-day moving average but on Thursday battling back to recover it, the S&P 500 falling below its 50-day average and remaining slightly below it, and the Nasdaq never falling that far.

Throughout the current bull market the indices have fallen below their 50-day averages several times only to reverse course soon after, and, until proven differently, it is safe to assume that will be the case this time.

Take my trading advice: The more important levels to watch are the 200-day moving averages, which for the Dow is currently at 17,280, for the S&P 500, 1995, and the Nasdaq, 4585.

Our internal indicators reflect the schizophrenia currently being show by the indices. The 200-day Moving Averages Index has fallen to level 1 bearish, the Advance/Decline Index is level 1 bullish, and the Cumulative Volume Index is level 3 bearish. Level 1 is the strongest reading, level 3 the weakest. But these readings can easily change if the indices make a strong move in either direction.

Five of the nine major S&P sector funds are level 1 bullish, a decrease from seven last week, reinforcing the idea that some, but not all, stocks are undergoing bouts of weakness.

iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSEARCA:TLT) continue to trend below their 50-day moving average, which is not surprising in a market environment expecting the Fed to begin raising interest rates later this year. Still, for now the current weakness should be considered just a consolidation from the strength seen over the past year in TLT. But TLT falling below its 200-day moving average would be a bad sign for bonds and quite likely also for stocks. The dollar, via the PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP), supports the idea that weakness in TLT is only temporary, as UUP is building on the trading range breakout it made last week.

Commodities continue to be pretty much “no man’s land,” with key commodities copper (CU), oil (USO) and gold (GLD) mired in bear markets. The key takeaway from commodity weakness in terms of trading advice is the global economy continues to struggle, which argues for interest rates remaining relatively low. This also includes U.S. interest rates. Our internal economic indicators reveal a U.S. economy that is spotty at best.

With the major stock indices giving mixed readings, options traders should try to evenly weight between bullish and bearish positions.

I have a bearish opportunity on a publishing company you’ve likely never heard of.

A. H. Belo Corporation (NYSE:AHC), which is based in Dallas and owns and operates several English and Spanish newspapers. The company was founded in 1842 and, while that’s an impressive history, the chart shows that the future may hold bad news for the stock – at least in the very short term.

My best trading advice: Buy the AHC May 7.750 Put options at 75 cents or lower.

AHC stock closed Thursday at $8.10. After entry, take profits if the stock price hits $6.80 or the option price hits $1.40. Exit if the stock price closes above $8.70.

And a note that my trading advice for the Kellogg (K) puts is also still in play, showing a small gain, so keep an eye on those if K shares make a move down to my $60.50 target.

InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. It’s the perfect ‘bridge’ between investing in ordinary stocks and the turbocharged world of options trading.

Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990. Try Power Options Weekly today and receive 2 weeks for the price of 1 for only $19.95.

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