Despite the V-shaped recovery out of the October low, I’m not entirely convinced the major indices including the S&P, Dow and NASDAQ, have fully discounted all the risks. Strong earnings figures can take traders’ minds off more fundamental problems.
Here’s a milestone I want you to consider: The best institutional technicians have said that if the S&P closes below the 1,959 level, odds then increase for a return to the lows of Oct. 15 at 1,820 for a re-test, or close to a re-test, of that low. This could happen as soon as the next couple of weeks, perhaps coinciding with surprise outcomes in the congressional mid-term elections. However, if a retest were to occur, the good news is that traders will have a much better sense that the lows (for now) are in, and we can enjoy a strong end to the year for the S&P.
The alternative picture, which has some validity, is that the Oct. 16 lows were the retest – so, since it has already occurred, the S&P and the broader market are now free to move back up to its September highs and perhaps beyond.
That’s the kind of picture that has me positioned in bullish trades in Trader’s Advantage, particularly aligned with the market’s preference for larger companies with the most diverse and steady income streams. Here’s one for you now:
Dr. Reddy’s Laboratories Limited (ADR) (RDY) is an $8.6 billion maker of generic drugs based in India. The shares should have substantial upside once they recover from the recent global equity pullback. I like long entries for RDY at $51.10 or less.
After you’re established, hold for my target of $55.05, or some 8.5% higher than where RDY closed on Wednesday. In this environment, given the potential scenario I gave you above, I do recommend a tight stop on RDY shares; place a stop at $48.05 limit, good till canceled.
Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.
