Market uptrend intact, but some cracks showing
Despite ending last week on a decidedly down note, the major market indices remain at or above key support levels and still continue to reflect a positive overall trend picture. That said, leadership appears to be narrowing with the DJIA and Nasdaq showing the strongest performance, and some segments of the market have gone negative – notably Financials, Health Care, Consumer Discretionary, and even Consumer Staples. Overall this could suggest more “sloppy” action ahead.
Key downside support for the S&P 500 is about 1535-1540 (about where it is now) and 1525; other support is at 890 and 885 for the Russell 3000; 2670 and 2640 for the Nasdaq; and 13,700 for the DJIA. Overhead resistance is now defined by the recent highs: about 1553 for the S&P 500; 903 for the Russell 3000; 2720 for the Nasdaq; and 14,000 for the DJIA.
Options Expiration Results
- General Electric (GE) – The June 37.5-strike calls I sold on 7/19/07 against my long position in GE (purchased 12/29/07) expired ITM and my shares were called for a total 7-month net return, including two dividend payments, of about 4.9%. (I could have done much better had I waited a bit on this one.)
- Newmont Mining (NEM) – The July 40-strike puts I sold against NEM on 7/11/07 expired out of the money (OTM) for a 9-day net return of about 1%.
- OfficeMax (OMX) – The July 37.5-strike puts I sold against OMX on 7/10/07 expired OTM for a 10-day net return of about 1.4%.
New positions
ConocoPhillips (COP) – Last Monday I sold some August 85-strike puts on COP as the stock sold off after rallying strongly for several days on higher oil prices and the company’s announcement of a $15 billion stock buyback:
COP, along with the rest of the oil sector, has been very strong recently and – despite some recent short-term weakness – remains in a clear intermediate- and longer-term uptrend. A break below the 75 level would change this picture.
International Paper (IP) – Last Monday I sold some August 40-strike puts on IP as the stock dipped along with the rest of the market:
IP has been performing well lately, and recently broke through significant resistance at the 39 – 40 level. There is still plenty of overhead resistance all the way up to the 45 level, so it may not make much progress very quickly. However, as long as the stock holds above the 38 support level the intermediate-term picture should remain positive.
Progress Energy (PGN) – Last Monday I also sold some August 45-strike puts on PGN as the stock dipped in the weak market and on continued weakness in the utility sector:
PGN is clearly in an intermediate-term downtrend and appears to have further to go on the downside. However it’s also technically “oversold,” and may be due for a bounce sometime in the coming days/weeks – perhaps off of support at around the 44 level.
Whole Foods Market (WFMI) – Last Tuesday I sold some August 40 calls against my long position in WFMI (purchased 1/22/07) as the stock – once again – bounced from its recent lows at around the 38 level:
WFMI remains in an intermediate-term downtrend, but is showing some positive divergences on the price momentum oscillators I watch, suggesting that a bottoming process may be taking place. The short-term picture is unclear, but a test of downside support at the 36-37 level still seems likely at some point.
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include American Express (AXP), Apollo Group (APOL), Avery Dennison (AVY), Boyd Gaming (BYD), Comcast (CMCSA), Community Health Services (CYH), CSX Corp. (CSX), Emerson Electric (EMR), Fairchild Semiconductor (FCS), Exelon (EXC), Humana (HUM), International Rectifier (IRF), Kaydon (KDN), Microsoft (MSFT), Mine Safety Appliances (MSA), NCR Corp. (NCR), Photronics (PLAB), SanDisk (SNDK), Steel Dynamics (STLD), Union Pacific (UNP), and Whirlpool Corp. (WHR).
New “oversold” stocks of interest this week include Allstate (ALL), Brinker International (EAT), Brown Shoe (BWS), Brunswick Corp. (BC), Chubb Corp. (CB), Fifth Third Bancorp (FITB), Group 1 Automotive (GPI), Merrill Lynch (MER), Morgan Stanley (MS), Pfizer (PFE) and Wachovia Corp. (WB).
