Trade of the Day: Halliburton (HAL)

by Ken Trester | October 18, 2013 8:54 am

Our index and internal indicators are showing improvement, a welcome sight after the political shenanigans of the past few weeks. But with attention returning to more normal news events, will that really be a good thing?

Market Outlook

Our index indicators are giving bullish readings, an upgrade from last week’s bullish to neutral. Obviously, the passing of the debt limit crisis contributed mightily to the indexes’ improved readings. All three major indexes are now in primary bullish trends relative to their key moving averages, and will remain so with the Dow staying above 15,190, the S&P 500 above 1685, and the Nasdaq above 3720. Those numbers represent the index’s 50-day moving averages.

Our internal indicators have improved along with the indexes. All nine S&P sector funds are bullish, as are the Advance/Decline Index and Cumulative Volume Index. And the 200-day Moving Averages Index has crossed back above its 50-day moving average. Unfortunately, that average and the index itself both remain below the 200-day Moving Average, and the overall tend of the indicator has been bearish since February. But the indexes have been bucking this indicator for several months, and it is not unreasonable to believe that they will continue to do so.

With the political roadblocks out of the way, at least for now, investor attention can return to corporate profits and perhaps more important, the Fed’s monetary intentions. It seems fairly certain that the Fed will wait until the effects of the recent government shenanigans are known before taking any action to curtail liquidity. Statistically speaking, that could take at least a couple months. So the beginning of the “tapering” of the Fed’s long-term Treasury purchases likely won’t begin until next year, and also not until a new Chairperson is in place.

That likelihood is evident in the price of U.S. Treasuries. After coming under selling pressure form traders worried about an actual U.S. default, the iShares Barclays 20+ Year Treasury Bond ETF (TLT[1]) has rebounded to more accurately reflect the current state of economic affairs, which continue to be not very good. Over the past couple days TLT has staged a huge snapback rally and has crossed back above its 50-day moving average. While it still has a long way to go before becoming primary bullish again, as we mentioned above, it likely has some time available to make that move. For now, its nascent bullish move will remain intact as long as TLT stays above $106.

With our indicators improving to bullish, and potential political roadblocks at least temporarily removed from the scene, options players should begin to lean more heavily toward bullish positions. But as we always caution, keep some bearish puts around just in case.

Recommendation: Buy Halliburton (HAL[2]) December 55 call options at 84 cents or lower. After entry, take profits if the stock price hits $54.40 or the option price reaches $1.90. Exit if the stock price closes below $50.40 or the option price falls to 50 cents.

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  1. TLT:
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  5. Try Power Options Weekly today and receive 2 weeks for the price of 1 for only $19.95:

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