Although the price indexes and internal indicators are bullish, a “risk on” attitude does not look to have returned to the market.
Bullish Market Indicators
The Dow has moved above its 50-day moving average, the S&P 500 as well as five of its nine sub-sectors are in primary bullish trends, and the Nasdaq is neutral to bullish. By our reading, it needs to cross back above 2995 to resume a primary bullish trend. Our internal indicators are confirming the strength in the price indexes, but as the daily headlines continually remind us, another pullback is only a political comment or two from happening.
The primary “safe haven” assets, U.S. Treasuries and the U.S. dollar, as tracked by iShares Barclays 20+ Year Treasury Bond Fund (NYSE:TLT) and the PowerShares DB US Dollar Index Bullish ETF (NYSE: UUP), are also gaining strength. In fact, TLT is in a primary bullish trend and will continue to be so as long as it remains above $124. UUP remains in a primary bearish trend, but it has had a nice bounce over the past couple days.
…Tempered by Political Uncertainty
As has been mentioned more times than anyone probably would care to hear about it, markets are being held hostage by the ongoing budget negotiations in Washington D.C. With it being such a public spectacle and the potential consequences of a “no deal” being so dire, it is hard to imagine that things have come this close to the deadline without major progress being made. But it seems that they have.
How to Trade in This Environment
With our indicators being primarily bullish, options buyers should continue to buy calls. But continue to also buy puts, as the recent strength in safe haven assets could be a beneath-the-surface warning that things are not going well on the political front. And as it has been for the past few weeks, it continues to be a good idea to scale back on your trading on all levels until the political uncertainty clears.
One good call option to take advantage of these bullish indicators is in Dell (NASDAQ:DELL).
Recommendation: Buy DELL Feb 11 call options at 43 cents or lower, when the stock Price is at $10.50. After entry, take profits if the stock price hits $11.50 or the option price reaches 90 cents. Exit if the stock price closes below $10.00 or the option price falls to 30 cents.
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.