by Ken Trester | April 4, 2014 9:22 am
Major stock indexes are bullish, but may be losing their momentum. Our index indicators are giving bullish readings, an upgrade over last week’s bullish to neutral. The reason for the upgrade is that the Nasdaq has bounced back above its 50-day moving average to join the Dow Industrials and S and P 500 in primary bullish trends relative to their key moving averages. The Dow needs to stay above 16,240, the S and P 500 above 1,850 and the Nasdaq above 4,225 to keep those trends intact. That they do so is by no means a certainty, especially for the Nasdaq. A dip back below could come as soon as Friday.
Our internal indicators are supporting the bullish trend and, in fact, have gained strength over the past week. The 200-day Moving Averages Index, Advance/Decline Index and Cumulative Volume Index internal indicators are bullish, as are the Dow Transport and Dow Utility Averages. All nine S&P sector funds are also bullish, an increase from seven of nine last week, as U.S. economic numbers continue to show improvement.
Reflecting the improving economy, long-term Treasury bond prices (TLT) have weakened slightly. But, in perhaps a key technical event, TLT bounced off its 50-day moving average at $107.30 on Thursday, allowing it to maintain a neutral trend. Over the past three months TLT has been gaining strength, and its 50-day average has been creeping nearer its 200-day moving average. A bullish crossover of the 200-day average by the 50-day average would confirm a massive psychology reversal that prevailed to start this year, when almost everyone believed that bond prices had nowhere to go but down. That’s just another example of why it usually pays to bet against the crowd.
Try as they might to improve, commodity prices generally continue to struggle. Oil is the current star of the sector, maintaining its primary bullish trend on Thursday by bouncing off its 50-day moving average. Copper has been gaining strength over the past couple weeks but remains neutral to bearish. And the plunge by gold shows no signs of letting up. SPDR Gold Shares (GLD) is in a primary bearish trend relative to its key moving averages and lacks chart support above the $120 area. The same goes for the trend for silver. So, just as they did a week ago, commodity traders don’t believe that strong economic growth or inflation are on the world’s immediate doorstep.
With our indicators moving back into bullish territory, options traders should continue to favor bullish positions such as buying calls. But, continue to buy and hold some puts. The Nasdaq isn’t strong and short-term stochastic readings for the Dow and S and P 500 are overbought and need to be worked out before stocks can head universally higher.
As such, I have a twofer trade for you today: both a call and a put recommendation that my system identified as being under-valued, technically attractive and with a high likelihood of turning a profit in three weeks or less.
Buy the Valero Energy (VLO) May 60 Calls at $1.10 or lower. After entry, take profits if the stock price hits $60.90 or the option price hits $3.30. Exit if the stock price closes below $53.20 or the option price closes below 50 cents.
Buy the Ingersol Rand (IR) May 55 Puts at $1.00 or lower. After entry, take profits if the stock price hits $53.70 or the option price hits $2.80. Exit if the stock price closes above $60.00 or the option price closes below 66 cents.
InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades to you each Friday. It’s the perfect ‘bridge’ between investing in ordinary stocks and the turbocharged world of options trading. 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. Try Power Options Weekly today and receive 2 weeks for the price of 1 for only $19.95.
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