Our indicators continue to give bullish readings, unchanged from last week. But what has changed is the “pause to refresh” has given way to a new move higher as stocks have resumed their bullish trend.
Our internal indicators are also showing improvement. Primarily, the 200-day Moving Averages Index has moved out of “immediate danger” territory. While it has not yet recovered a primary bullish signal, it is close to it. Meanwhile the Advance/Decline Index and Cumulative Volume Index remain bullish, as do the Dow Theory-oriented Dow Transportation Average and Dow Utilities Average.
Speaking of the Dow Utilities, that average is rocketing higher and is reflecting a trading rotation toward defensive sectors. While all nine major S&P sector funds are bullish, the most bullish are Consumer Staples, Health Care and Utilities. Investors realize that it isn’t profitable to ignore the massive money printing being undertaken by the world’s central banks, but those investors are limiting their exposure to conservative sectors. After all, if the global economy really was doing well, then all that money printing wouldn’t be needed.
Two trends also signaling a renewed interest in riskier assets involve the U.S. Dollar (NYSE:UUP) and U.S. Treasuries (NYSE:TLT). Following two months of strength UUP is threatening to fall out of its bullish trend. It must stay above its 50-day moving average at $22.33 to keep that from happening. TLT meanwhile has pulled back to its 200-day moving average. Over the past month it has managed to reverse its lower highs-lower lows trading pattern, but that also happened last autumn only to prove to be a short-lived change. Weakness in the dollar and Treasuries is interpreted by many as a sign that money is rotating into stocks, so bearishness in UUP and TLT is seen as good for stocks.
With our indicators showing renewed vigor, options traders should tilt their trades toward bullish positions such as buying calls and writing put credit spreads.
Every week, I scan thousands of potential option plays to develop your exclusive list of Power Options. These Quantum QTX Power Options rely on a proprietary, scientific approach that removes the guesswork and allows my powerful software to identify the best option buys, and we’ve got one to get you started in GameStope (NYSE:GME).
Buy the GME Jul 35 Calls at $1.20 or lower. After entry, take profits if the stock price hits $34.60 or the option price hits $2.40. Exit if the stock price closes at or below $30.20 or the option price closes at or below 80 cents.
While this call has a high probability of returning profits, don’t go overboard loading up on bullish plays, as the current push higher by indexes could simply be the result of money flowing into retirement plans in front of the mid-April deadline. So continue to hold some puts in your portfolio, especially since they don’t cost much thanks to near-record low volatility.
Remember, if a profit target is hit intra-day, exit and take profits immediately. If the position closes at or below the stock-based or options-based stop loss, exit the trade the next morning at the open.
Additionally, if an option has neither hit the stop-loss nor the target within three weeks of entry, close the position. I do not recommend holding an option play for more than three weeks.
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