Strange bedfellows: The Dow and Semis show strength
Despite having violated various “critical” levels and moving averages used by some analysts, the market so far has refused to break down. The latest weekly trend analysis of the major indices continues to reflect a short-term downtrend within a still-intact intermediate- and longer-term uptrend.
In fact, while the broad Russell 2000 index weakened slightly this past week, two other indices – the Dow Jones Industrials and the Semiconductors Holders Trust (SMH) – improved to a positive reading. This is still consistent with a correction in the intermediate-term (measured in weeks/months) uptrend. A break below about 1250 on the S&P500, however, would almost certainly signal a new downtrend.
New positions: LLY, PCU, and DE
Last week I sold some February 55 puts on Eli Lilly (LLY), February 75 puts on Southern Copper Corp. (PCU), and February 70 puts on Deere & Co. (DE). In the case of LLY and DE, both stocks have shown recent strength and I took advantage of some near-term weakness to sell puts in anticipation that the stocks may have higher to go over the intermediate term.
In the case of PCU, I opportunistically sold some puts as it fell along with other commodities stocks last week amidst talk of the “bursting of the commodities bubble.” I’m not sure how much I buy into that (I wouldn’t mind owning some of these stocks at lower prices), but I would be cautious of this sector over the intermediate term.
Watchlist
Stocks that showed up this past week on my “upside strength” scans that caught my eye include Analog Devices (ADI), AU Optronics (AUO), Best Buy (BBY), Emerson Electric (EMR), McDonalds (MCD), Norfolk Southern Corp. (NSC), Lockheed Martin (LMT), Northrup Grumman (NOC), Steel Dynamics (STLD), Waste Management (WMI), and Weyerhaeuser (WY). “Beaten down” stocks of interest this week include Anheuser Busch (BUD), Avon Products (AVP), Sara Lee (SLE), Amgen (AMGN), MDC Holdings (MDC), Whole Foods Market (WFMI), and Freeport-McMoRan (FCX).
