Market outlook: Most scenarios still positive
The intermediate-term trend picture remains firmly positive for all of the major market indices, although there are signs – in the form of negative divergences – of some slowing in upside momentum. While these may suggest an increased possibility of a correction ahead, they could also easily be negated by further strong upside action.
Neither scenario – a near-term correction or a re-acceleration to the upside – is likely to give immediate cause for worry. Probably the most negative thing the market could do right now from a technical perspective, apart from breaking down through important support levels, is to move marginally higher over the next week or two and then reverse to the downside.
In any case, until the indicators suggest otherwise, I’ll continue to view sell offs as put-selling opportunities. Downside support levels are about 2400, 2380, and 2350 for the Nasdaq, and about 1390, 1375, and 1350-1360 for the S&P 500. Upside resistance for the Nasdaq is about 2480-2500 and 2640; for the S&P 500 it’s about 1415-1420 and 1440-1450.
New positions
No new positions this week, but I did close out an existing position:
Bank of New York (BK) – Last Monday I sold out my long position in BK (purchased 10/20/06) after it spiked up sharply on news of the company’s merger with Mellon Financial (MEL), for a two-month net return of about 12.5% (including a dividend payment):
I was conflicted here between my inclination to “let profits run” on the one hand, and to “fade the news” on the other. The latter won out, at least for now, but I’ll likely be back in on weakness if given the opportunity.
Watchlists
New additions to the “upside strength” list include Apache (APA), Applied Materials (AMAT), Bristol Myers Squibb (BMY), Conoco Philips (COP), A.G. Edwards (AGE), Duke Energy (DUK), Fortune Brands (FO), Gannett (GCI), General Mills (GIS), Heinz (HNZ), Manor Care (HCR), McDonalds (MCD), Polaris Industries (PII), Reliance Steel (RS), SK Telecom (SKM), and Southern Copper (PCU).
This week’s only addition back to the “oversold” list is Hershey (HSY).
