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Trade of the Day: Harris Corp. (HRS)

The Fed's in control, and for now it's intent on keeping this market moving higher.


Our internal indicators continue to support the bullishness in the indices, as the Advance/Decline Index and Cumulative Volume Index are bullish, unchanged from a week ago, while the 200-day Moving Averages Index remains in neutral territory. However, only eight of nine S&P sector funds are bullish, and it is the sector that has turned neutral that is notable. That sector is utilities, the sector most sensitive to rising interest rates.

That rising rates have moved to the forefront of investor thinking is more evidence of a market reacting to Fed doings, not economic facts. Economic numbers have not improved to any noticeable degree over what they have been for many months, during which time markets were comfortable with record low interest rates. We mentioned last week that deflation remains a very real threat, and our thinking on that hasn’t changed. And deflation is hardly a time to be raising interest rates.

Instead, it was some Fed members projecting a possible time frame for beginning a tapering of the current monetary stimulus that raised the antenna of investors. This is evident in the action of long-term Treasuries (TLT). TLT has been moving lower all month, but over the past week has seen a volatility spike, which is characteristic of a market that might be nearing a prolonged trend change. But for those expecting TLT to continue moving lower, it is now sitting at a support level that held during the previous Treasury and interest rate scare in February and March.

With our indicators remaining bullish, options players should continue to weight toward bullish positions. My system unveiled a new long opportunity in Harris Corp. (HRS), which is in the defense communications space.

Buy the HRS July 50 Calls at $1.40 or lower. You should be able to get a nice discount with today’s pullback. After entry, take profits if the stock price hits $52.10 or the option price hits $2.70. Exit if the stock price closes below $49.10 or the option price closes below 90 cents.

I don’t like to hold options trades for more than three weeks, so if neither the target nor stop loss is hit within three weeks of entry, close the trade at market and move on to the next opportunity.

But remember: Continue to take some tactical bearish positions such as buying puts, just in case. Markets have a way of front-running actual events, and recent Fed actions could become a trigger point for fast money looking to exit currently overcrowded stock and bond markets.

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