Trade of the Day: Dow Chemical (DOW)

by Ken Trester | May 30, 2014 8:25 am

Stocks continued to rally duringthe past week, ignoring the old “sell in May and go away” adage. But when all seems well in the world, experienced traders know that is when the unexpected is most likely to happen.

Our index indicators are giving bullish readings, unchanged from last week. The key factor during the past week was the Nasdaq building on the bullish cross it achieved a week ago to join the Dow Industrials and S&P 500 in primary bullish trends. The Nasdaq must remain above 4150 for its new bullish trend to continue. The Dow remains bullish by staying above 16,460, and the S&P 500 does so by staying above 1875.

Our internal indicators are confirming the bullishness of the indices, as the 200-day Moving Averages Index, Cumulative Volume Index and Advance/Decline Index are all bullish. All nine S&P sector funds remain bullish, and the Dow Transports and Dow Utilities are bullish. Also, the upcoming week is the first week of a new month, which generally has a bullish bias.

The driving force behind the widespread bullishness in stocks continues to be long-term Treasury bonds (TLT[1]). As we suggested might happen[2], TLT reversed its short pullback from two weeks ago and charged to yet another 52-week high, in the process continuing its distinct “higher highs, higher lows” trading pattern. Of course, if recent form holds, TLT will soften somewhat over the coming week. But even if that occurs, TLT remains bullish by staying above $111.

Amid the bullishness in paper assets, some key trend changes have taken place in the commodity space over the past week. U.S. Oil (USO[3]) kept its bullish trend intact, and it has been joined by copper, as indicated by the First Trust ISE Global Copper Index (CU[4]). However, the Gold ETF (GLD[5]) cracked and fell below key support at $124. It could be awhile before it reverses that trend.

With stocks, bonds and key industrial commodities rallying and gold falling, it certainly appears that all is well with the world. So stocks and options traders should continue to weight more toward bullish positions than bearish.

Today, I’ve got a call option on one of the bigger-name stocks that’s been on a steady incline, and my analysis shows it should keep climbing in the near term: Dow Chemical (DOW[6]).

Buy the DOW Sep 55 Calls at $1.20 or lower (DOW’s stock price closed Thursday at $52.40).

After entry, take profits if DOW stock hits $54.50 or the option price hits $2.10. Exit if the stock price closes below $51.40 or the option price closes below 90 cents.

While this call options trade carries a high probability of profiting, as almost any trader will tell you, when all seems good, that is when things turn bad. So, keep some puts in your portfolio “just in case.”

InvestorPlace advisor Ken Trester[7] brings you Power Options Weekly[8], 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[9].



  1. TLT:
  2. we suggested might happen:
  3. USO:
  4. CU:
  5. GLD:
  6. DOW:
  7. Ken Trester:
  8. Power Options Weekly:
  9. Try Power Options Weekly today and receive 2 weeks for the price of 1 for only $19.95:

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