Caution signs, but market holding up
While most major market indices showed modest gains this past week, not much has changed from a technical perspective – upward momentum is slowing, the technology sector is still under performing, and the trend picture, though improved a bit from last week, remains somewhat mixed overall. As yet however, these caution signs are only that, and are just as consistent with a short-term consolidation in an ongoing uptrend as they are with a potential intermediate-term top of some sort.
If the market does sell off from here, I’ll be keeping an eye on the following downside support levels: DJIA (12,100), S&P 500 (1375), and Nasdaq (2350). In the meantime, from a more positive perspective, seasonality factors suggest the possibility of some strength during the next week or two (the so-called “January Effect“).
New positions
General Electric (GE) – Late Friday I bought some GE shares outright as the stock sold off along with the rest of the market at the close:
GE has been acting well lately and I was waiting for an opportunity to buy (or sell puts) into a dip in anticipation of higher prices over the intermediate term. In this case I took an initial position in the stock itself as I wasn’t sure I wanted to sell the in-the-money January 37.5 puts, and the out-of-the-money 35-strike puts weren’t offering enough premium to make them worth while.
If GE drops to the 36 to 36-1/2 level I’ll look to either buy more shares or sell some 35-strike puts. A move below 36, however, would cause me to revise my intermediate-term outlook.
Watchlists
New stocks of interest showing up in the “upside strength” scans include Boyd Gaming (BYD), Colonial BancGroup (CNB), Constellation Brands (STZ), Deere & Company (DE), Fifth Third Bancorp (FITB), Harris Corp. (HRS), Johnson Controls (JCI), KeyCorp (KEY), R. R. Donnelley & Sons (RRD), and Schering-Plough (SGP).
The only new addition to the “oversold” list this week is Pen West Energy Trust (PWE).
