Cracks appearing in the rally/DJ indices highlights
It’s not time to panic yet, but last week’s market sell-off succeeded in reverting the previously all-positive weekly trend analysis back to a mixed picture. For now, I’m continuing to view weakness here as probably representing short-term consolidation in an ongoing uptrend – but only as long as the S&P 500 remains above the all-important 1275 – 1285 level.
Looking at the three major Dow Jones indices – the Industrial, Utilities, and Transportation averages – presents an interesting picture as well. Of all the major market indices, the Dow Jones Industrial Average is currently the strongest, and remains in a clear uptrend:
The Dow Jones Utilities Index has also been performing very well, but may be topping out here – at least for the short term:
The Dow Jones Transportation Index topped out some time ago, and is now in fact becoming oversold on a short- and intermediate-term basis, although with still plenty of room on the downside:
I’m watching several stocks in this sector (mostly shippers, truckers, and railroads) and am looking to sell puts on further declines.
New positions
British Petroleum (BP) – Last Thursday I sold some October 65 puts on BP as it fell with the rest of the oil sector on lower crude prices, triggering some short-term “oversold” readings:
This represents only an initial position in this sector, as it still appears to have plenty of room to go lower. If it does, I’ll be looking to add to my position in this and other high-yielding energy-related stocks.
M.D.C. Holdings (MDC) – Also last Thursday I sold some September 40 puts on MDC as it and other home-building stocks opened lower on yet more news of lowered profit forecasts in the sector:
Most stocks in this sector are now clearly oversold on an intermediate-term basis, and showing signs of positive divergences (so far) on this latest decline. I expect to be selling more puts against MDC and other stocks in this sector on further weakness.
Watchlist
Stocks showing up on my “upside strength” scans this week that I’ll be watching for pullback opportunities include ACE Limited (ACE), Alberto Culver (ACV), Allstate (ALL), American International Group (AIG), Baxter International (BAX), China Petroleum & Chemical Corp. (SNP), McDonalds (MCD), Scotts Miracle-Gro (SMG), and Sysco Corp. (SYY).
New “oversold” candidates of interest include Fording Canadian Coal Trust (FDG), Quanex Corp. (NX), and Statoil ASA (STO). I’ll be looking for put-selling opportunities on these – and other “oversold” candidates I’ve mentioned in recent weeks – on further declines.
