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NASDAQ-100 Bullish Percent at 80%

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The NASDAQ-100 Bullish Percent ($BPNDX) reading from last night at www.stockcharts.com has this indicator once again showing that the NASDAQ-100 is back in overbought territory and traders need to be selective when buying stocks at current levels. This indicator doesn't tell us about the NASDAQ-100 Index direction, but it does tell us that if we're going to be buying stocks, we want to be looking for those that are just coming out of a base, and if a pullback occurs, a trader or investor won't be subject to a 15% pullback if the stock wants to retreat back into its base. By selecting or trading stocks that are breaking out of a base, you may be buying a stock that institutions are also just beginning their early phase of accumulation too, thus helping support the stock on broader market weakness.

Futures lower

Equity futures are lower this morning, but just fractionally. Currently we're seeing S&P futures trade down 3 points, NASDAQ futures are off 9 and Dow futures are lower by 20. Fair value for the S&P 500 today is $2.72. That price will not change during the trading session. Computer buy programs are set for buying at $4.38 and set for selling at $1.46.

Covered call in Qualcomm

If there is one stock in the PremierMarkets.com profiled portfolio that "worries" me, its would be our profiled 1/2 position in Qualcomm (NASDAQ:QCOM). It's not QCOM so much as it is that the stock has four letters in its symbol and that it carries a top 3 weighting in the NASDAQ-100 Tracking Stock (QQQ). While the stock looks to be a leader in the NASDAQ-100, I know all too well the negative effect the broader market can have on a stock. With the NASDAQ-100 bullish percent up at the 80% bullish level once again, this tells me that risk in the group is high. That to me sounds like a perfect time to be writing a covered calls on QCOM for June 65 expiration (AAOFM), especially when profiled at $63 with a bullish target for the trade of $75. My thinking is that by selling a covered call, a trader can actually further help reduce risk in the stock as it relates to the QQQs and bullish percent reading, by reducing the cost basis in the stock from profiled $63 less call premium received. At last night's close, the AAOFM was bid $7. Should the stock move higher and close above $65 before option expiration, then a trader would be forced to relinquish the stock at $65 + $7 premium or $72.

I don't want subscribers to think "now he's changing his mind again." No, that's not the case. The main reason we are profiling different stocks on PremierMarkets.com is to make money. Then at certain times, I will highlight different investment and trading strategies that everyone may be able to use at some point in the future. Today we're recognizing that the bullish percent for the NASDAQ-100 is back in "overbought" territory and that is an indication of "higher risk" for stocks in the NASDAQ-100. On 5/16/01 we thought it might be wise to lock in some gains on QCOM at $64.75 and reduce portfolio exposure. By profiling this covered call strategy, we are also looking to reduce some risk (not all risk) of a pullback, while still having the "option" to participate in an upward price than last nights close in QCOM at $69.91. Now that I've highlighted this possibility, traders can either write a covered call on stock they may have bought at $63 or stick with our current stop loss profiled at $59.50 on the stock.

Premiermarkets.com may profile this strategy at some point during today's trading session in the hot list depending on market conditions. We'll be watching bond YIELDS, the QQQs and even the NASDAQ Telecom Index (IXTCX) to help determine what type of action we should be taking. PremierMarkets.com remains bullish on shares of QCOM over the intermediate to longer-term, but short-term indicators indicate that a trader should have some type of hedge strategy ready to implement should broader technology experience a pullback.

Jeff Bailey
Senior Market Technician

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