Oh top, Oh top! Wherefore art thou?
While the latest market trend picture remains overwhelmingly positive, there are some signs suggesting that the market could (finally) be nearing a top of some sort. The latest moves to new highs are (so far) being accompanied by negative divergences on the price/momentum oscillators I follow, as well as by moves to new lows on the put/call ratio sentiment indicators.
That said, with so many market participants apparently looking and/or waiting for a top, the ingredients for one may still not be in place. And, as always, it’s probably a good idea to keep in mind the possibility that the market may prove uncooperative. 
For example, it could re-accelerate to the upside, negating the current negative divergences. And the put/call ratios – which aren’t precise timing indicators anyway – could continue to go still lower. In any case, market action over the next week or so should go a long way toward clarifying the near-term outlook.
Key near-term downside support levels are now about 1500 for the S&P 500, 2580-2590 for the Nasdaq, 875-880 for the Russell 3000, and about 13,400 for the DJIA. Upside resistance is now at about 1550 for the S&P 500 and 2640-2660 for the Nasdaq.
New positions
Whole Foods Market (WFMI) – Last Friday I sold some June 40 calls against my long position in WFMI (purchased 1/22/07) as the stock continued to recover from its recent sell off below the 40 level:
Despite its current short-term rally, WFMI is still in an intermediate-term downtrend and does appear likely to at least retest its recent lows at some point. On the other hand, the fact that many analysts currently have “sell” recommendations on WFMI – or even suggest selling WFMI short here – probably means it’s near a bottom. In any case my net cost basis in this position is still well below the current price, and if my calls are assigned I’ll exit the position with a modest profit.
Watchlists
New and returning stocks of interest in this week’s “upside strength” scans include Anheuser Busch (BUD), Cemex (CX), CIT Group (CIT), Clear Channel Communications (CCU), Deutsche Telecom (DT), Eagle Materials (EXP), Newell Rubbermaid (NWL), Polaris Industries (PII), Raytheon (RTN), The Stanley Works (SWK), Starwood Hotels & Resorts Worldwide (HOT), Symantec (SYMC), United Technologies (UTX), and Verizon (VZ).
Stocks of interest in this week’s “oversold” scans include NiSource (NI), PNM resources (PNM), and UST Inc. (UST).
