Trade of the Day: Louisiana Pacific (LPX)

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My indicators are neutral to slightly positive this week. I’m marginally leaning toward the bullish side right now, as the Dow and S&P, which set new highs this week, have broken out of their trading ranges, but just barely. However, I’m not very comfortable with this break out, because it wasn’t as decisive as I was hoping for.

What remains in focus is the fact that the Dow Jones Transportation Index (DJT), which is one of leading indicators for the health of the economy, is not doing well. I’m not convinced of the market’s move up at this point, but, if you look at the technicals, the broader market has broken out of a right triangle formation, which is usually very bullish. Additionally, the market continues to climb a wall of worry so, unless other signals appear, the direction seems to be up for now.

The Dow is about 20% undervalued to the S&P 500 in terms of their P/E ratios, which is abnormal. The Dow is trading at somewhat of a bargain now compared to the other major indexes, as the U.S. dollar’s strength has discouraged investment in the Dow blue-chips that have more international exposure. Instead, there has been more of a push towards S&P 500 companies, which are much less exposed to international headwinds and the effects of a strong U.S. dollar.

Oil prices are holding up, and I remain bullish on oil in the longer-term and energy stocks generally, as the spread of ISIS control in the Middle East could still create a bit of an interruption in oil production. Plus, while the price of oil has fallen dramatically many times in the past, it has always bounced back. Despite my bullish view on energy, the retail sector remains weak and, if the retail sector doesn’t want to participate, it’s going to be difficult for the market to continue rising.

Still, despite lingering concerns, I am bullish at the moment, which is contrary to what I might expect at this time of the year. But I won’t fight the market, so here’s a new short-term call option in Louisiana Pacific (LPX). Just keep your positions small until a more convincing picture appears for the market.

The stock recently made a bullish double crossover of the 21-day and 50-day moving averages. There is also support at the $16.00 level.

Buy the LPX July 19 Calls at 50 cents or lower.  After entry, take profits if LPX hits $19.50 or the option price hits $1.20. Exit if the stock price closes below $17.50.

As a reminder, U.S. markets are closed on Monday, May 25, in observance of Memorial Day, so look for the next Trade of the Day on Tuesday, May 26.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/trade-of-the-day-louisiana-pacificlpx-indicators/.

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