Trade of the Day: H&R Block (HRB) and Murphy Oil (MUR)

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Our index indicators are giving bullish readings, unchanged from a week ago. The market’s continuing advance has not been unexpected, as we mentioned last week that we were entering one of the most bullish time periods of the year. But now, the first week of a new month has passed, and the indexes remain severely overbought, so we would expect to see an overdue pullback over the next week or so. But any pullback should not affect the primary bullish trend. That remains intact with the Dow Industrials staying above 17,380, the S&P above 2,015, and the Nasdaq above 4,615.

Our internal indicators also continue to show a bullish trend, unchanged from a week ago. The 200-day Moving Averages Index remains level 3 bullish, and the Advance/Decline Index and Cumulative Volume Index remain level 1 bullish. Eight of the nine major S&P sector funds are in a primary bullish trend, with the lagging industry continuing to be energy. And volatility indexes continue to drift lower. This is almost a carbon copy paragraph from a week ago, which is another reason we expect a change. Nothing stays perfect forever.

Perhaps as a harbinger of a potential short-term market change, money continues to move into Treasury bonds (TLT). A longer-term read of TLT’s uptrend is the global economy is not very strong. And a “conspiracy theory” read is that central banks can’t raise interest rate because indebted governments can’t afford them to. For the record, we subscribe to all three of those theories. TLT remains in a bullish trend above $119.30.

The U.S. dollar (UUP) bumped another step higher over the past week and is bullish above $23.05. Junk bonds (JNK) aren’t sharing in the Treasury and dollar rallies, thanks to falling oil prices (energy companies are issuers of a huge amount of junk bonds). JNK looks very bearish right now.

Speaking of oil (USO), it has fallen to its lowest price since the USO exchange-traded fund was created. By doing so, it is in a price position with no chart support. Increasing North American supplies can only be responsible for some of the carnage. The remainder is due to an outlook for slower economic growth, which is also evident in copper (CU). CU is also at its all-time low. Gold (GLD) has managed to maintain its current recovery rally. But has quite a ways to go before it is out of the bearish woods.

With momentum in the major stock indexes continuing in-line with a bullish trend, options traders should continue to favor bullish positions such as buying calls. But, as usual, don’t neglect bearish positions, as time continues to draw nearer to a sudden and sharp pullback in the indexes. As such, I’ve got a two-for trade for you today featuring one call option to take advantage of the stock’s bullish trend and one put option to profit from one stock’s pullback.

For the bullish bet: Buy the H&R Block (HRB) Jan 34 Calls at $1.20 or lower (HRB closed Thursday at $34.10). After entry, take profits if HRB’s stock price hits $36.60 or the option price hits $2.90. Exit if the stock price closes below $32.90.

For bearish profits: Buy the Murphy Oil Corp. (MUR) Jan 45 Puts at 80 cents or lower (MUR closed Thursday at $49.20). After entry, take profits if MUR’s stock price hits $44.70 or the option price hits $2.40. Exit if the stock price closes above $51.50.

Sometimes it pays to play both sides of the market, and this is one of those times.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/bullishtrend-pullback/.

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