Our indicators are giving bullish readings, unchanged from a week ago, as all three major price indexes are in primary bullish trends. These bullish trends will be in place as long as the Dow remains above 13,120, the S&P 500 above 1415, and the Nasdaq above 3000. Those prices represent the index’s current 50-day moving averages.
Also, eight of nine S&P sector indexes are in primary bullish trends, with the only laggard being the “safe haven” utility index. And seven of eight global indexes are also in primary bullish trends. So for now at least, traders have taken on an appetite for stocks.
The move toward riskier assets is reflected by weakness in two safe haven indexes, the iShares Barclays 20+ Yr Treasury Bond ETF (NYSEARCA:TLT) and the PowerShares DB US Dollar Index Bullish Fund (NYSEARCA:UUP). TLT has fallen below its 200-day moving average, a somewhat surprising turn given that the Fed has said it is going to continue to manipulate interest rates lower until infinity if it deems it necessary. UUP has fallen to a key support level and could fall to multi-year lows if that support fails to hold.
Strength in stocks has also resulted in weakness in commodities. Two key components of both inflation and the economy, oil and natural gas (UNG) prices, have been in downtrends although both United States Oil Fund LP ETF (NYSE:USO) and United States Natural Gas Fund, LP (NYSE:UNG) have been stronger this past week. But that recent strength contrasts with recent trends in the SPDR Gold Trust ETF (NYSE:GLD) and iShares Silver Trust ETF (NYSE:SLV), both of which have moved sharply lower and might even be in a freefall.
With our indicators remaining bullish, options buyers should continue to buy calls. But buying puts should also be on your menu, even if it is at a lower ratio than your call buying. Budget shenanigans in Washington continue to drive the markets, and compromise and common sense seldom rules the day in that city. And as it has been for the past few weeks, the safest course of action is to scale back on your trading on all levels until the political uncertainty clears.
A good way to minimize potential losses and maximize your profits is to buy only inexpensive and undervalued options. One such trade that my Power Options system is highlighting is in Chiquita Brands International (NYSE:CQB).
Recommendation: Buy CQB Feb 8 Call options at 75 cents or lower, when the stock price is around $8.40. After entry, take profits if the stock price hits $9.20 or the option price reaches $1.40. Exit if the stock price closes below $8.00 or the option price falls to 50 cents.
InvestorPlace advisor Ken Trester is editor of the popular Maximum Options program. 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 Maximum Options today for 2 months for only $99.