Caution light for market bulls
The price weakness experienced by many major stock markets and indices last week – along with ongoing negative technical and sentiment indicators, and a mixed trend picture – continues to suggest caution for market bulls. The real question here is whether the market continues to correct further (which would be healthy for the current uptrend if it relieved the negative conditions) or whether it holds here, above the recent lows, and moves back up to new highs – a scenario that might set the stage for a more significant decline a little further down the road.
The recent June 7/8 lows represent key downside support: about 1490 for the S&P 500, 2540 for the Nasdaq, 865 for the Russell 3000, and about 13,250 for the DJIA. A break below these could easily result in a further quick 1% or 2% decline, to about 1475 and 1460 on the S&P 500; 2500 on the Nasdaq; 855 for the Russell 3000; and about 13,000 for the DJIA. Upside resistance remains at the recent highs – about 1540 for the S&P 500; 896 for the Russell 3000; 2640 and 2680 for the Nasdaq; and 13,700 for the DJIA.
New positions
General Electric (GE) – Last Tuesday I sold calls against my long position in GE (bought 12/29/06) as the stock rallied to a 5-year high on news that GE’s Energy Financial Services unit bought a stake in a natural gas processor and distributor:
I had originally bought the stock outright back in late December hoping to see more of a follow-through from its strong rally earlier that month, but wasn’t quick enough to sell (or sell calls) into the brief pop that preceded a sell-off down to the 34 area. Currently the stock is in an intermediate-term uptrend but – like the overall market – has been experiencing some short-term weakness. A move below the 36 to 36-1/2 support level would cause me to re-evaluate my intermediate-term outlook.
Watchlists
Stocks of interest in this week’s “upside strength” scans include AK Steel Holding (AKS), Arctic Cat (ACAT), Avnet (AVT), Baker Hughes (BHI), Diebold (DBD), Fortune Brands (FO), The Gap (GPS), Kraft (KFT), Maxim Integrated Products (MXIM), Time Warner (TWX), and Werner Enterprises (WERN).
The recent market weakness has resulted in several new stocks of interest showing up on my “oversold” scans, including Bank of America (BAC), Best Buy (BBY), J.C. Penney (JCP), Johnson & Johnson (JNJ), Kimberly-Clark (KMB), Mattel (MAT), and Mylan Laboratories (MYL),
