Caution ahead
For the first time in a while, the charts of the major indices – with the notable exception of the DJIA – appear consistent with many analysts’ predictions of an imminent correction. Warning signs include a “negative divergence”- the first since the intermediate-term uptrend that began last year – that accompanied the Russell 2000′s most recent move to new highs just a week or so ago, and continuing weakness in the semiconductor sector.
However – except for the Semiconductors Holders Trust (SMH), which is clearly in full retreat – the weekly trend analysis suggests that while the intermediate-term trend of the overall market has clearly weakened, it’s still too soon to definitively declare the beginning of a new downtrend. More weakness or sideways action this coming week might well finally tip the balance.
New position
I sold some March 35 puts on General Maritime (GMR) as it and other transportation/shipping stocks fell back to or below recent lows, triggering short-term possible “oversold” readings on my indicators. This was an initial position, and I’ll be looking to sell some more puts on this or other stocks in the sector on further weakness, which seems likely.
Watchlist update
Stocks that showed up this past week on “upside strength” scans that caught my eye include Colgate Palmolive (CL), Illinois Tool Works (ITW), Kellogg (K), Manor Care (HCR), Microsoft (MSFT), Newell Rubbermaid (NWL), Posco (PKX), Procter & Gamble (PG), and United Parcel Service (UPS). “Beaten down” stocks of interest include Bunge (BG), Diebold (DBD), Dominion Resources (D), First American (FAF), Ford (F), FPL Group (FPL), Frontline (FRO), Harley Davidson (HDI), HCA Inc. (HCA), Popular (BPOP), Schering Plough (SGP), Saint Paul Travelers (STA), Sysco (SYY), and Vodaphone (VOD).
