Market trend now neutral/positive, but sentiment key
Last week’s impressive rally was enough to shift the market trend picture from negative to neutral – but leaning toward positive. Many stocks remain oversold, so more upside might be expected in the days/weeks ahead as these conditions are relieved.
However, market sentiment will probably be key here to the current rally’s sustainability. A quick return to bullish euphoria – as could be happening – would likely spell the end of the rally sooner rather than later.
New positions
Briggs & Stratton (BGG) – Last Wednesday I sold some December 20-strike calls on BGG as the stock rallied with the market:
By selling in-the-money calls here I either locked in a small profit (if the stock remains above 20) or significantly reduced my net cost basis in the position if the stock does drop further. Signs are pointing to a possible rally in BGG from its current levels, but I decided there are other stocks I’d rather be in here, and by selling calls rather than the stock outright I could in effect “sell the stock” but still remain eligible for this quarter’s dividend payout.
MGIC Investment (MTG) – Last Friday I sold some December 25-strike calls on MTG as the stock rallied sharply on news of a possible mortgage rescue plan agreement between banks and the government:
Unfortunately I missed the huge opening rally in the stock, but did at least manage to sell the calls above their lows for the day. 
There’s certainly room for MTG to continue to move higher from here, but for now the stock still remains in an intermediate-term downtrend.
Wal-Mart Stores (WMT) – Last Wednesday I sold some December 47.5-strike calls on WMT as the stock rallied with the market:
WMT now appears to be in an intermediate-term uptrend and certainly has plenty of room to move higher over the longer term. The 50-51 level is likely to continue to pose resistance in the short term. The 45 level remains strong support.
Watchlists
“Upside strength” candidates of interest this week include Abbott Laboratories (ABT), Aon Corp. (AOC), Best Buy (BBY), Deere & Company (DE), Dominion Resources (D), General Mills (GIS), Novartis (NVS), PepsiCo (PEP), Reynolds American (RAI), and Staples (SPLS).
The only new “oversold” candidate of interest this week is Fortune Brands (FO).
