A Quick Trade for a Neutral Market

by Ken Trester | October 31, 2012 8:26 am

It’s not hard to find reasons for traders to be skittish. And though our indicators aren’t looking too bearish, they aren’t looking too rosy, either.

Stocks managed to hold their ground Friday, but the past couple weeks have done some damage to technical and internal indicators. It could take some time for that damage to heal.

Though our Power Options indicators still are in a bullish-to-neutral range[1], the number of indicators giving neutral signals has increased dramatically. Primary among these are the Dow Industrials and S&P 500, which have followed the Nasdaq and fallen below their 50-day moving averages. Also, the number of industry sectors in bullish trends has fallen from eight last week to two this week. So a launch to new highs by the indices is on hold.

By the numbers, the first support level for the Dow is at 13,000, followed by key support at 12,900 with its 200-day moving average. Similar support for the S&P 500 is at 1,400 and 1,375. As for the Nasdaq, which has proven to be the leader of what has transpired over the past week or so, only 200-day moving average support at 2,955 sits between it and possibly more serious trouble.

With sentiment taking a turn for the worse, look to add puts to your portfolio.

Recommended Fast Options Trade: Computer Sciences (NYSE:CSC[2])

CSC provides information technology and professional services to governments and commercial enterprises. The stock has been in a downtrend over the past month and is sitting at its 50-day moving average. If it breaks below that, it has room to fall considerably further.

I recommend that you buy the Computer Sciences (CSC) Dec 30 Put at a suggested price of $1.40 ($140 per contract).

After taking the position, enter a good-till-cancelled contingent order to sell this option if the stock hits its target price of $28.40. That should give you an option price of about $2.90, for a 107% profit.

Ken Trester[3] is editor of the popular Maximum Options[4] 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.

  1. still are in a bullish-to-neutral range: https://investorplace.com/2012/10/favor-calls-but-dont-forget-puts/
  2. CSC: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSC
  3. Ken Trester: https://investorplace.com/2011/06/author/Ken-Trester/
  4. Maximum Options: https://order.investorplace.com/index.jsp?sid=WRC177&uid=

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