Stocks continued their climb over the past week. And sectors that are indicative of a bull market are now leading the way.
This rotation is evident in the major S&P sector funds. While all nine funds remain bullish, the top performers have been the Consumer Discretionary, Energy, Financial, Materials, Industrials and Technology funds, representing sectors that have either lagged or had choppy trading patterns over the past few months. Heretofore stalwarts Consumer Staples, Health Care and Utilities are now laggards. Global funds have also outperformed over the past few weeks, another positive sign.
As for the major indexes, they will remain bullish as long as they stay above their 50-day moving averages, which are 14,590 for the Dow, 1570 for the S&P 500, and 3270 for the Nasdaq. Our internal indicators are supporting bullishness in the major indexes, as the 200-day Moving Averages Index, Advance/Decline Index and Cumulative Volume Index are all bullish, unchanged from a week ago.
In tandem with the increased appetite for risk taking, the well-known “safety indicators” have pulled back a bit, but not by much. The U.S. dollar is bullish and will stay bullish as long as it is above $22.35. But U.S. Treasuries have slipped, and TLT has fallen below both its 50-day and 200-day moving averages. This could be another bullish factor for stocks, as money coming out of Treasuries more than likely is headed for the stock market.
With our indicators still in bullish territory, options traders should continue to lean toward the bullish camp. But nothing in investing is ever etched in stone, so as always it is a good idea to resist the notion to jump in with both feet. Bearish plays should also remain on your radar.
So how should you play this trend? Like my colleague Jon Markman, who shared a trade in this stock a few months ago, I’m bullish on Boston Scientific (NYSE:BSX). My Power Options scanner is showing that its options are liquid, volatile, and undervalued–which gives us a perfect chance to make some more money off this name.
Recommendation: Buy the BSX Aug 8 Calls (BSX130817C00008000) at 65 cents or lower. After entry, take profits if the stock price hits $8.90 or the option price hits $1.10. Exit if the stock price closes below $8.00 or the option price closes below 50 cents.
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