Sell-off: Just bottoming action or start of new leg down?
Following last week’s market sell-off, the market trend picture is now once again mostly negative. While this certainly suggests some further near-term weakness, not too much more can be read into it at this point as temporary trend reversals are normal behavior at market bottoms (and tops) as the market often experiences increased “noise” during significant trend changes.
Bearish sentiment is still high, so further downside action here will likely reach extreme levels again rather quickly – suggesting a buying opportunity. At what lower price level(s) this might occur is the big question, so a look at downside support is key.
Critical downside support appears to be at about 1310-1320 and 1290-1300 for the S&P 500; 2250-2260 and ~2200 for the Nasdaq; and about ~12,200 and ~12,000 for the DJIA. Certainly a break below the lower support levels would suggest another leg down of some sort is underway. In any case, I will continue to use declines as welcome put-selling opportunities on selected stocks of interest, but not be as aggressive in setting my limit prices as I would be if the market were in an uptrend.
New positions
General Electric (GE) – Late Friday I sold some May 30-strike puts on GE as the stock – and the broad market – sold off into the close:
After Friday’s major sell-off the stock is back to its lows of several weeks ago after having rallied strongly in the interim, resulting in an intermediate-term trend picture that’s mixed at best. Price action over the coming days should offer more clues as to what might be expected in the coming weeks/months. Near-term upside resistance is at 33, 34-35 and ~36 1/2, while downside support appears to be at the 31 1/2-32 and ~29-30 levels. At a price below 30 the stock would appear to be a reasonable value, and would offer a ~4% dividend yield.
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include Apogee Enterprises (APOG), Eastman Chemical (EMN), Pacer International (PACR), and Precision Drilling (PDS).
New and returning “oversold” candidates of interest this week include Bristol Myers Squibb (BMY), Deutsche Telecom (DT), Gannett (GCI), General Electric (GE), Honda Motor (HMC), Leggett & Platt (LEG), The McGraw-Hill Companies (MHP), Packaging Corporation of America (PKG), Pepco Holdings (POM), SK Telecom (SKM), and Winnebago Industries (WGO).
