Trend negative, but rally imminent?
The trend picture remains negative for most market indices and sectors. Only the Healthcare and Utilities sectors are currently positive.
Sentiment indicators are improving as market observers are becoming more bearish, but still aren’t at extreme levels. A break lower, however, could change this quickly as it would constitute a break of many “critical” technical support levels and moving averages used by many technical analysts and almost certainly result in a flurry of official “bear market” pronouncements.
That said, the ingredients are also in place for at least a short-term rally from current levels. The market is oversold, it’s holding (just) at important support levels, sentiment is more bearish than bullish, and on Friday – for the first time in quite a while – the financial sector outperformed the rest of the market.
New positions
Foot Locker (FL) – Last Wednesday I sold some February 10-strike puts on FL as the stock dropped along with the market and continued weakness in the retail sector:
The short- and intermediate-term trend is clearly down, but the stock is oversold and approaching what should be strong support at the 9-10 level. Fundamentally the stock appears to be a reasonable value at these levels.
Watchlists
“Upside strength” candidates of interest this week include Aflac (AFL), Cigna (CI), Coca Cola (KO), Deutsche Telecom (DT), sanofi-aventis (SNY), and Steris (STE).
“Oversold” candidates of interest this week include Analog Devices (ADI), Fortune Brands (FO), Honda Motor (HMC), Lowe’s (LOW), Masco (MAS), Nam Tai Electronics (NTE), New York Community Bancorp (NYB), Parker Hannifin (PH), Timken Company (TKR), Toyota Motor (TM), and Tupperware (TUP).
