Signs still point to higher prices ahead
The market’s ongoing strength and currently all-positive weekly trend picture continue to suggest still higher prices to come. While I’m wary of chasing the market at this point in the current upmove, I’ll continue to view pullbacks as put-selling opportunities.
Near-term upside resistance levels for the key U.S. indices that have yet to achieve new all-time highs are 1500 and 1510-1520 for the S&P 500 and 2590-2610 for the Nasdaq. Near-term downside support levels appear to be about 1490 and 1470-1475 (S&P 500); 2530 and 2500-2510 (Nasdaq); 860 and ~845 (Russell 3000); and (surprise) 13,000, 12,900, and 12,800 (DJIA).
New positions
ACE Limited (ACE) – On Tuesday I sold some May 60 calls against my long position in ACE (purchased 1/22/07) as the stock approached its 60-61 highs, made late last year, following positive earnings news:
The short- and long-term trends for ACE are clearly up, while the intermediate-term picture is somewhat mixed, suggesting that more sideways consolidation is certainly possible. A move up through the near-term resistance of 60-61 would bode well. A break back below the near-term 52-53 support level would suggest more consolidation for a while.
International Paper (IP) – On Thursday I sold some May 37.5 calls against my long position in IP (purchased 3/19/07) as the stock approached its recent highs at the 38 level:
Both the short- and intermediate-term trends for IP are clearly up, although the stock might be expected to encounter significant resistance in the 38 to 40 price range. Near-term downside support is at about 36-37.
MSC Industrial Direct Co. (MSM) – On Friday I sold some May 50 puts on MSM as it dipped below the 50 level:
The stock is in both a short- and intermediate-term uptrend, and currently backing off from resistance at the 50-51 price level. Another test of this level appears likely in the coming days/weeks. A move above this level would suggest a test of the 53 level, and perhaps even a challenge of its ~55 highs, made about a year ago. A break below 47-48 would cause me to re-evaluate this outlook.
New York Community Bancorp (NYB) – On Thursday I sold some May 17.5 puts on NYB as it sold off intraday after the company reported a 2% drop-off in its first-quarter profit:
NYB is currently in both a short- and intermediate-term uptrend, and appears to be in the process of bottoming on a longer-term basis (as long as it holds above 16). If the stock can break through near-term upside resistance at the 18 level, then a move to the 18 1/2 to 18 3/4 might be expected. A break below near-term support at 17 1/4 might suggest more backing and filling in the 16 1/2 to 17 area for a while.
Options Expiration Results (Correction)
- Automatic Data Processing (ADP) – It turns out that I was assigned the April 50 calls I’d sold against my long position in ADP (purchased 3/19/07), and my shares were called, for a one-month net return of better than 4%.
Watchlists
Stocks of interest showing up on recent “upside strength” scans include 3M Company (MMM), ArvinMeritor (ARM), Bowne & Company (BNE), Coca Cola (KO), Cohu (COHU), Comerica (CMA), Emerson Electric (EMR), Entegris (ENTG), GlaxoSmithKline (GSK), Intersil (ISIL), International Paper (IP)*, JP Morgan (JPM), Koninklijke Philips Electronics (PHG), Linear Technology (LLTC), Marsh & McLennan (MMC), Patterson-UTI Energy (PTEN), Texas Instruments (TXN), Thornburg Mortgage (TMA), Timken Company (TKR), U.S. Bancorp (USB), ViaSat (VSAT), William Wrigley Jr. (WWY), Wyeth (WYE), and Xilinx (XLNX).
Stocks of interest showing up on recent “oversold” scans include American Home Mortgage (AHM), Brown & Brown (BRO), Hovnanian Enterprises (HOV), International Game Technology (IGT), Paychex (PYAX), Stride Rite (SRR), and Varian Medical Systems (VAR).
* I currently own and/or have an options position on this stock.
