Market uptrend intact until proven otherwise
The trend picture for the market remains positive overall, but last Friday’s sell-off could signal some near-term weakness ahead. Additional concerns are some short-term negative divergences on some of the technical indicators, and the now once again negative trend picture for the Semiconductor HOLDRs ETF.
On a more positive note, the Russell 2000 Index, which represents small- and mid-cap stocks, is continuing to outperform the other major indices. The bottom line remains that until market action indicates otherwise, the current uptrend must be assumed to be intact.
Key near-term downside support levels that I’m watching are about 795 and 780 for the Russell 2000; ~1415 for the S&P 500; 12,450-12,500 and 12,350 for the DJIA; and 2430-2450 and ~2400 for the Nasdaq. Upside resistance levels remain about 1455 for the S&P 500, and ~2510-2520 for the Nasdaq.
New positions
Fifth Third Bancorp (FITB) – Last Tuesday I sold some February 40 calls against my long position in FITB (which was put to me last month) as the stock rallied with the rest of the market:
The stock, though short-term positive, could also easily dip back below the 40 level in the near term, so I sold the calls to protect my short-term gains in that event. On the other hand, if the stock closes above 40 at next week’s options expiration and is called, I’ll have closed out my overall position in FITB with a decent profit.
Progress Energy (PGN) – Last Wednesday I sold some March 45 calls against my long position in PGN (purchased 4/21/06) as the stock rallied back up toward its recent highs at the 49-50 level:
This is another protective move to lock in some profits in the event the stock falls back to 47 or below in the coming weeks. If not, and the stock is called at next month’s expiration, I’ll have ended up having made a decent profit in the overall position (including having collected a ~5% annual dividend yield during the time I owned the shares).
Whole Foods Market (WFMI) – Last Friday I sold some March 45 calls against my long position in WFMI (purchased 1/22/07) as the stock continued to bounce from its recent lows in the low 40s to back above 45:
This stock has plenty of room to rally further here over the coming weeks, but could also easily retest its recent lows – or at least fall back below the 45 level. Selling these calls will either lock me in with a nice profit if the stock is called away next month, or significantly reduce my net cost basis in my long stock position.
Watchlists
New additions (or re-listings) to the “upside strength” list include include American Electric Power (AEP), Apogee Enterprises (APOG), Caterpillar (CAT), Costco (COST), Honeywell (HON), Kinder Morgan Energy Partners (KMP), L-3 Communications Holdings (LLL), Nippon Telegraph & Telephone (NTT), PerkinElmer (PKI), Texas Instruments (TXN), UnumProvident (UNM), and William Wrigley Jr. (WWY).
New additions to the “oversold” list this week include Corus Bankshares (CORS) and Kraft (KFT).
