Market positive, but resistance looms overhead
The market trend picture remains positive after another up week – the third in a row. The market averages are now approaching the next significant upside resistance levels (about ~1430-1440 for the S&P 500; 2480-2500 and ~2550 for the Nasdaq; and 13,200-13,300 for the DJIA), which might be expected to trigger some consolidative action. Market sentiment is worsening (i.e., participants are becoming more bullish) but is not yet at extremes.
New positions
Altria Group (MO) – Last Tuesday I sold some May 20-strike puts on MO as the stock sold off following a broker downgrade:
The stock is in a short- and intermediate-term downtrend and appears likely to head lower over the intermediate term, although it is short-term oversold. I don’t mind picking up some shares at around these levels (~20) if they’re put to me, but it does seem likely that there may be an opportunity to buy at lower levels (i.e., 17-19) at some point. For now, support is at 19 1/2 to 20, while resistance is at 21.
Bank of America (BAC) – Last Friday I sold some June 37.5-strike puts on BAC as the stock dipped intraday with the market:
BAC appears to be in a large sideways consolidative “triangle” pattern. Significant upside resistance is at the 42 level, while near-term downside support appears to be at 37-38. I don’t mind owning the stock at those lower levels if it’s put to me.
BCE, Inc. (BCE) – Last Thursday I sold some June 30-strike puts on BCE during some intraday weakness:
Currently BCE remains in a neutral to positive “holding pattern” as the planned second-quarter buyout of the company continues to move forward. A break below ~35 would suggest a move to lower support at the 30-31 level, or back down to the 26-27 level – a move that could easily occur if the buyout deal was cancelled. I’m comfortable owning this stock at below $30 per share.
Wachovia Corp. (WB) – On Friday I sold some October 32.5-strike covered calls against my long position in WB (purchased 1/22/08) as the stock rallied with the rest of the financial sector:
I sold some longer-term calls here as a defensive move to reduce my net cost basis in this position should there be another test of the lows, while still locking in a decent profit if the stock eventually gets called. The stock, like most financials, has plenty of room to move on the upside, so this may well have been premature. But for now the intermediate-term trend is still down.
Whole Foods Market (WFMI) – On Tuesday I sold some May 32-strike covered calls against my long position in WFMI (purchased 03/22/08) as the stock rallied:
I was definitely too quick to pull the trigger here as the stock rallied significantly during the rest of the week. WFMI’s intermediate-term trend is now positive/neutral, and the stock is trading at the upper end of its range. A break below ~33 would probably suggest a move to new lows.
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include Ameren (AEE), AT&T (T), Duke Realty (DRE), Honda Motor (HMC), Host Hotels & Resorts (HST), Johnson & Johnson (JNJ), and Sysco (SYY).
New and returning “oversold” candidates of interest this week include Altria Group (MO), Colgate Palmolive (CL), Merck (MRK), Reynolds American (RAI), and Sunoco (SUN).
