The market’s sharp move upward over the last two weeks has resulted in my indicators giving bullish signals, but, once again, I am dubious. I would call the market overbought, and I don’t like to see these kinds of sharp market rallies with the indices in a downward bias. It tells me that the rally is being caused in part by short-covering, especially when we see short-term strength in the weaker areas of the market, such as the materials sector.
I’m still leaning toward the bearish camp, and part of that is because October is still a dangerous time for the market. As we head into November, the statistics show that, 75% of the time, the market is up from November to May, and it is generally a period in which the market is more bullish. For that reason, as we hit November, you will probably see my trade recommendations turn more bullish. But, right now, I’m still bearish and, plainly stated, I think the market’s going to go lower.
My outlook is not based any new information but rather the recognition that — after the S&P 500 broke down out of its long seven-month trading range — it naturally is going to take a while for the market to repair the damage.
Wal-Mart (WMT) was down big yesterday after lowering its earnings guidance, which shows that the retail sector may not be as healthy as it should be. WMT, which is mainly a brick and mortar operation, may also be getting hurt from the online shopping space, where Amazon.com (AMZN) has the advantage. A stronger dollar probably hurt profits a bit as well, but I think the lowered guidance is more due to the trend in online purchasing.
Turning to commodities, I am bullish on gold and silver, as both are starting to show more strength. As far as oil goes, I think it really has made a bottom, and we still have a very big oil surplus. But the situation could turn quickly, as we’re seeing Russian President Vladimir Putin stir up trouble in the Middle East, which could drive oil prices up. Russia’s economy relies on higher oil prices, and Putin’s military actions are helping to inflate oil prices and bolster his country’s economic picture.
In sum, my outlook has not changed much from last week, and I don’t want anyone to be fooled by the market rallies we’ve seen lately. There will be a time when my expectations for this market will improve, but we are not there yet.
I want to give you a put option today that my system uncovered that has a high probability of profiting, based on the underlying technical analysis.
Buy to open the Pilgrim’s Pride (PPC) Dec 18 Puts (PPC151218P00018000) at $1.00 or lower.
After entry, take profits if the stock price hits $16.90 or the option price hits $1.90. Exit if the stock price closes above $19.90.
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