Trade of the Day: Southwest Airlines (LUV)

by Ken Trester | November 15, 2013 8:33 am

Stocks continued their bullish ways over the past week, an almost monotonous trend. But that monotony is also a bullish sign.

Market Outlook

Our index indicators continue to give bullish readings, unchanged from last week. The most positive development is that the Dow Industrials have resolved their potential triple top to the upside, which adds to the market’s upside momentum. The current uptrend will remain in place as long as the Dow stays above 15,450, the S&P 500 above 1730, and the Nasdaq above 3840. Those numbers represent the average’s 50-day moving averages.

Sub-index indicators also remain positive. All nine S&P sector index funds are bullish. And the Dow Transports and Dow Utilities are also bullish, which as we suggested last week was an important factor helping the Dow Industrials break through their triple top resistance. All three Dow indexes being bullish is a classic Dow Theory buy signal.

Our internal indicators are confirming the bullish momentum in the indexes. The Advance/Decline Index and Cumulative Volume Index remain bullish. And while the 200-day Moving Averages Index is still in bearish territory, it is again making strides toward getting out (but it still has a long way to go to reverse the downtrend it has been mired in since the start of this year). However, the indexes have been bucking this indicator’s negativity all year, so other indicators should be given more weight than the 200-day Moving Averages Index.

Of course, at the headline level, an eye must also be kept on Treasury bond prices, as Fed actions and policy have been largely responsible for the rally by stocks, and the price of the iShares Barclays 20+ Yr. Treasury Bond ETF (TLT[1]) is an easy way to gauge what traders are thinking in that regard. We mentioned a few weeks ago that TLT is likely to maintain a trading range between $104 and $108. While recent activity has lowered the bottom of that range to $103, that is still within a range that stocks can tolerate.

All in all, there has been no change in our indicators or outlook, which may seem somewhat dull and boring. But an old market adage holds, “never short a dull market,” so boring can be construed as another bullish sign. So with that plus the fact that our indicators are continuing to trend bullish, options players should continue to play more toward bullish positions such as buying calls and writing put credit spreads.


Buy the Southwest Airlines (LUV[2]) Jan (2014) 18 Calls (LUV140118C00018000[3]) at $0.85 or lower. After entry, take profits if the stock price hits $19.50 or the option price hits $1.80. Exit if the stock price closes below $17.50 or the option price closes below $0.50.

Jon Markman operates the investment firm Markman Capital Insights[4]. He also writes a daily trading newsletter, Trader’s Advantage[5], and CounterPoint Options[6], a service geared towards helping individual traders make steady, consistent profits with the VIX.  Follow Jon Markman[7] at Google+.

  1. TLT:
  2. LUV:
  3. LUV140118C00018000:
  4. Markman Capital Insights:
  5. Trader’s Advantage:
  6. CounterPoint Options:
  7. Jon Markman:

Source URL:
Short URL: