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My indicators continue to give bullish readings for the third week in a row, but the current rally seems to be tiring a bit as stocks move into slightly overbought territory. Personally, I’m leaning mildly towards the bearish camp now given that the major indices have been making lower highs since they peaked in January, which tells me that the market is still in an intermediate-term downtrend.
As I always say, I do not want to buck the Fed, so that means we’ll need to keep exercising caution as the Fed continues on its path of quantitative tightening. And, not only does it plan to continue offloading a portion of its balance sheet each month, the pace at which it does so is set to increase going forward.
It also appears that the odds are in favor of four rate hikes this year instead of three, which is going to put more pressure on stocks, as it will have the opposite effect of the quantitative easing strategy the Fed has been engaged in for so many years.
However, one segment of the market that has been powering higher lately is the energy sector. With WTI crude oil trading close to $70 per barrel for the first time since 2014, energy stocks that have been laying low for a while are starting to perk up again, and one of those stocks is NRG Energy, Inc. (NYSE:NRG).
The company is also scheduled to release first-quarter earnings on May 3, and it could see increased bullish interest heading into the report. With that in mind, I’m recommending the following bullish play:
Buy to open the NRG Jun 33 Calls (NRG180615C00033000) at $0.95 or lower.
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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. 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.