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Getting a little bullish

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Stocks are trying to firm up as the Dow Industrials (INDU) 7,713 +1.6% breaks to a session high and attempts to lead the broader S&P 500 Index (SPX.X) 826 +1.41%, NASADQ Composite (COMPX) 1,181 +0.79% and NASDAQ-100 Index (NDX.X) 843 +1.32% higher.

Earlier this morning, the more technology expose NASDAQ indexes were hovering near unchanged levels but look to be finding some bullishness as the Dow makes a session high.

Dow breadth is positive with 28 of the 30 stocks trading positive. The Dow's Gains are lead by Hewlett Packard (NYSE:HPQ) $12.33 +5.6%, Du Pont (NYSE:DD) $38.20 +5.9%, IBM (NYSE:IBM) $60.85 +4.35% and Exxon Mobil (NYSE:XOM) $33.25 +4.2%, while building products retailer Home Depot (NYSE:HD) $25.40 -2.6% lags the move higher.

From prior Index Trader Wraps at OptionInvestor.com, traders may be monitoring the Dow Industrials (INDU) for near-term resistance at the 7,750 level, but a move above that level could have a Dow rally building back near the 8,000 level.

One stock I'm leaning toward the bullish side in the Dow Industrials is share of consumer products giant Johnson & Johnson (NYSE:JNJ) $55.80 +3.18%. In last night's Index Trader Wrap at OptionInvestor.com, this is one Dow component I thought might be a "key stock" for traders to be monitoring in the Dow to hint of a potential turn in the tide for the Dow Industrials. The stock has held up very well in recent weeks despite declines in the Dow and S&P and looks to be a stock under accumulation. A break above the $57 level would have the stock back on a buy signal and contributing positively to the Dow Industrials Bullish % ($BPINDU) which is currently indicating a "bear correction" status for this market at an oversold reading of 10%.

Johnson & Johnson (JNJ) - $1 box

Shares of JNJ did give a "sell signal" at $52 as the Dow and S&P 500 Index got clobbered in September. However, the stock's relative strength compared to both the Dow and SPX are quite bullish. An "old" point and figure chartist's axiom is that often times, the first sell signal in the upward trend (upward trend is blue + and bullish support) is the "buying opportunity." The "sell signal" that can be created in the longer-term upward trend is the last of weak hands letting go of the stock, just before a second and third leg of a longer-term bullish move takes place.

For aggressive bulls, I like a 1/2 bullish position in JNJ at current levels, but look for a trade at $57 to signal further strength. For less aggressive bulls, I'd suggest a 1/2 bullish position with a trade at $57. For option traders, I like the January JNJ $55 calls (JNJAK) $4.40, no stop and targeting the $65 level on or before expiration.

Currently, breadth on the NYSE is positive with advancers leading decliners by a 5 to 3 margin. NASDAQ breadth is still negative with decliners outnumbering advancers by a 5 to 4 margin.

The NYSE currently shows 81 stocks trading new 52-week highs compared to 138 stocks at new lows. The NASDAQ continues to lag this indicator of breadth with just 18 stocks at new highs versus 231 stocks at new lows.

My "general" view currently given the economic and stock trading environment is that any BULLISH trades should be focused on NYSE listed stocks as this is where most institutional bulls will/would focus under the scenario of a market rebound. In a later intra-day update, I will discuss some historical data relating to the "October mid-term election" trends for the market. October tends to be NASDAQ's "worst month of the year" while September was the Dow's and S&P's worst month of the year. Again, I will discuss the historical notes pointed out by the StockTrader's Almanac regarding these historical observations, but mid-term election years, like we're in now can be bullish.

Jeff Bailey

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