Trade of the Day: Wendy’s (WEN)

Advertisement

Stocks turned in a mixed performance Friday to close out the week. But the rally remains confined to the United States, which could spell trouble in the longer run.

Our index indicators have been giving bullish readings — but over the past few days the rebound that began in mid-December has sputtered, as many traders continue to believe that this is a U.S.–centric rally and that, eventually, slowing global growth will catch up to U.S. stocks. For now, however, the major U.S. stock indexes are bullish and will remain so by staying above their 50-day moving averages. For the Dow Industrials, that average is currently at 17,590; for the S&P 500, 2,035; and for the Nasdaq, 4,675.

Our internal indicators also remain predominantly bullish. The 200-day Moving Averages Index is level 3 bullish, and the Cumulative Volume Index and Advance/Decline Indexes remain level 1 bullish. Seven of the nine major S&P sector funds are in primary bullish trends, with materials and energy remaining the laggards. But volatility indexes have again moved higher, the third time in the past four months that this has happened. And while their absolute levels remain low by historical standards, increasing volatility should be expected in the coming year.

Treasury bonds (TLT) and the dollar (UUP) are at the forefront of the U.S.–centric rally argument. TLT continues to move higher and is within striking distance of its all-time high…and, by the way, is now higher than it was even during the depths of the 2008 recession. That would not be the case if everything was going well with the global economy. UUP continues to lurch higher, but even more striking is that every major currency is bearish versus the dollar. Most major foreign stock markets are also bearish. Again, these are strong signs that money is flowing into the United States and out of just about everywhere else.

A strong dollar generally points to weak commodities, and that continues to be the case now. The bulls argue that commodity weakness is a product of oversupply, while bears counter that the oversupply is a result of lack of demand. Oil (USO) is the picture postcard of what is ailing the commodity complex, and USO has fallen to levels lower than where it stood in 2008. Oversupply due to increased North American production is a legitimate argument here.

But a broader picture can be seen in the PowerShares DB Commodity Index Tracking Fund (DBC), of which oil is just one component. DBC has also fallen to 2008 levels. All in all, not a picture of global economic health.

The argument of a U.S.­­­–centric rally certainly has merit, so put options should remain a major part of your portfolio. And with volatility and uncertainty increasing, continue to use caution by taking smaller positions than you normally would. That being said, with major U.S. stock indexes remaining bullish, options traders should continue to lean bullish with U.S. financial assets.

Today’s best “fast options” trade is in Wendys Co (WEN), which operates fast-food restaurants. After a prolonged period of weakness for most of last year, the stock reversed course in October and has been in an uptrend since then. Wendy’s has moved into a bullish trend relative to its key moving averages and should continue moving higher.

Buy the WEN May 10 Calls at 50 cents or lower (WEN closed Friday at $9.06). After entry, take profits if the stock hits $10 or the option hits 90 cents, for an 80% profit. Exit if the stock price closes below $8.60.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2015/01/trade-day-wendys-wen/.

©2024 InvestorPlace Media, LLC