A mixed bag: what’s next?
What to make of the market’s weak performance last week? The trend spectrums for the NASDAQ, Dow Industrials, and S&P500 are now, on balance, negative – but not overwhelmingly so – while that of the Russell 2000 still remains positive overall.
Last week’s sell-off could be seen as a positive by having avoided the potential negative divergence “sell signals” that would most likely have developed had the market moved higher immediately. This is consistent with the current mixed trend picture, and if true, means the market would be expected to reverse course back to the upside soon.
On the other hand, any time the trend picture weakens, the possibility of an imminent change in trend can’t be ignored. Next week’s action should go a long way toward resolving this question.
Two new positions
Last week I sold some February 25 puts in Tyco (TYC) after it sold off on disappointing earnings. I’ve been watching TYC for a while, and it’s finally dropped into my target area. I established half of a position, with the intention of selling more puts if the stock drops to the 20 to 22 level, which seems quite possible.
I also sold some February 70 puts on Unilever (UN) as it dipped last week with the rest of the market. The stock showed up on one of my “upside strength” scans the previous week, which could suggest further strength ahead. (It could also indicate a price peak, so we’ll see.)
Watchlist additions/deletions
Other stocks that have shown up recently on my “upside strength” scans that I’m watching closely include Alcoa (AA), Deere (DE), Inco (N), Mylan Laboratories (MYL), Potash Corp. (POT), and United Pacific (UNP). Stocks I’m watching especially closely on my “beaten down” watchlist include Anheuser Busch (BUD), Avon Products (AVP), Cendant (CD), Sara Lee (SLE), and 3M (MMM).
