The major stock indexes continue along in their bullish trends, but the Dow Industrials might be signaling an impending trend change.
Market Outlook
Our index indicators are giving bullish readings, unchanged from our last report. In fact, little has changed in the days since that report. The market’s primary bullish trend will remain in place as long as the Dow stays above 15,310, the S&P 500 above 1710, and the Nasdaq above 3790. Those numbers represent the index’s 50-day moving averages. And the bullish bias should continue during the coming week, as it is the first week of a new month.
But one thing to keep an eye on is a possible Dow pullback from current levels, which would form a short-term triple top that would certainly catch the eyes of technicians and market watchers. However, the S&P 500 and Nasdaq have already powered through the price points at which the Dow has stalled, so until proven otherwise, the Dow for now should be considered a lagging indicator to the more broad-based indexes.
Our internal indicators are confirming the bullish momentum in 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 continues to trend more positively than it has for most of this year. And not only are we entering a short-term positive time frame for stocks, the longer-term time frame between November and April has also been good historically.
The biggest news of the past three days was the Fed announcing that it will continue its current monetary policy for the foreseeable future. Our guess is that time frame runs to at least March of next year. U.S. Treasury bonds reflect this belief. The iShares Barclays 20+ Year Treasury Bond ETF (TLT) remains comfortably above its 50-day moving average, and though it has stalled somewhat recently, it will remain in a short-term bullish trend by continuing to trade above $106.50.
With our indicators continuing to trend to the bullish side, options players should proceed more toward bullish positions such as buying calls and writing put credit spreads. But continue to hold some puts in your portfolio, as the potential triple top in the Dow could be the start of something unexpected coming down the road.
Recommendation: Buy Petroleo Brasileiro (PBR) January 18 call options at 80 cents or lower. After entry, take profits if the stock price hits $19 or the option price reaches $1.70. Exit if the stock price closes below $16.60, or if the option price falls below 50 cents.
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