Trade of the Day: Xilinx (XLNX)

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Our index indicators are giving bullish readings, unchanged from last week. However, the indexes are also continuing their frustrating adherence to trading ranges that have been in force for the past few months. A break above those ranges would provide fuel for a substantial rally. But failure to overcome this trading range resistance could be interpreted as a short-term triple top, which in turn would pave the way for a possible correction.

To break this resistance, the Dow Industrials must move decisively above 18,200, the S&P 500 above 2,115, and the Nasdaq above 5,025.

Our internal indicators continue to be bullish and are improving even as the indexes chop out sideways patterns. The 200-day Moving Averages Index has improved to level 2 bullish and might be gathering sufficient momentum to move to level 1. The Advance/Decline Index and Cumulative Volume Index remain level 1 bullish. Seven of the nine major S&P sector funds are level 1 bullish, up from five last week. But both Dow sub-indexes continue to struggle, as the Dow Transports and Utility Averages remain level 3 bearish. The Transports reflect economic uncertainty, while the Utilities reflect interest rate uncertainty.

Treasury bonds (TLT) continue to trend lower, but TLT remains above its 50-day moving average (though that could change any day now). Money is leaving the Treasury market for overseas stock markets as traders become more comfortable with the idea of massive central-bank stimulus boosting those economies. Foreign currencies are also rallying against the U.S. dollar (UUP), though UUP remains in a bullish trend.

Concurrent with foreign markets improving, money is also leaving the Treasury market in favor of commodities, in particular economically-sensitive commodities. This means copper (CU) and oil (USO) have found some recent strength, but gold (GLD) continues to flounder. Whether this movement continues depends on monetary stimulus actually working. Nevertheless, that the “risk off” trade is gaining favor is a positive sign for an eventual breakout by U.S. stocks.

With stock markets worldwide being propped up almost entirely by monetary stimulus, a change of sentiment can happen almost overnight, so holding some put positions is prudent. But the major stock indexes are continuing to give bullish readings, so options traders should continue to favor call buying. Here’s one such bullish trade on a semiconductor stock.

Buy the Xilinx, Inc. (XLNX) Jun 46 Calls (XLNX150619C00046000) at $1.50 or lower. After entry, take profits if the stock price hits $47.50 or the option price hits $3.20. Exit if the stock price closes below $42.70.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/semiconductor-trade-of-the-day-xilinx-xlnx/.

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