There seems to be a lot of indecision in the stock market right now. Traders are nervous about holding over the weekend. Every day seems to present new headline risk. Will the next few days bring positive headlines regarding Japan's ability to cool their troubled reactors? Or will we see more negative headlines about out of control radiation and a spreading contamination. How about Libya? The U.N. has gotten involved. French fighter jets are flying over Libya trying to enforce a no-fly zone while the U.S. fires tomahawk missiles to destroy Qaddafi's anti-aircraft weapons. Violence is getting worse in places like Bahrain and Yemen as the governments there try to quell the protests for democracy and change.
The market's bounce off its lows could be nothing more than a bounce. The correction may not be over yet. If that's your view then I would avoid launching new bullish positions. Instead you may want to watch for the market to fail at overhead resistance to initiate new bearish plays. Potential failure points are 1275 and the 1300 level on the S&P 500. On the other hand if you are optimistic that the market will recover and focus on the bullish fundamentals in spite of the wall of worry then carefully consider new bullish trades. The best trade tonight might be to just stand back and wait and see if we have any more clarity on Monday or Tuesday before putting capital back to work in the market.
Tonight I have picked a couple of stocks that have been showing some relative strength.
In addition to tonight's new candidates check out these stocks:
PCAR - I was tempted to buy calls on PCAR since the stock is trying to bounce from its long-term trendline of higher lows (see a weekly chart). Readers might want to consider a trigger to buy calls on a move over $50.00 again.
GR - This stock has a similar pattern where it is bouncing from its long-term trendline of higher lows and is also bouncing from support near $80 and its 200-dma. Aggressive traders could launch positions now. I would look for a dip back toward the $82.50-81.50 zone as an entry point to buy calls.
CHRW - I would hesitate to buy a transport with oil poised to rally but CHRW has been holding support near $70.00 and its 200-dma. A rally past $74 or $75 might be a new bullish entry point to buy calls. I am concerned the 50-dma overhead could be resistance.
NEW DIRECTIONAL CALL PLAYS
CSX Corp. - CSX - close: 76.22 change: +0.50
Stop Loss: 73.45
Target(s): 79.90, 83.75
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below
Why We Like It:
Railroad stocks have been pretty resistant to rising oil prices and if oil continues to rise this industry should fare better than its less efficient peers. CSX has been showing relative strength recently. Instead of declining with the broader market the stock has been bouncing. Shares broke out to new highs this past week with the rally past resistance in the $75-76 zone.
If you believe the market will continue to bounce then consider bullish positions now. If you think the market's correction has farther to fall then I would avoid new bullish trades. I am suggesting small bullish positions in CSX now. We'll put our stop loss at $73.45, just under the $74.00 level. More aggressive traders could put their stop under $72.00 and the technical support near CSX's rising 40 and 50-dma.
FYI: The Point & Figure chart for CSX is bullish with a $98 target.
- Small Bullish Positions -
Buy the April $80 calls (CSX111680) current ask $0.97
Entry on March 21 at $ xx.xx
Earnings Date 04/13/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on March 19th, 2010
Whole Foods Market Inc. - WFMI - close: 60.44 change: +0.04
Stop Loss: 57.95
Target(s): 64.75, 69.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see Trigger
Why We Like It:
Investors are obviously not concerned about consumer spending or what high gasoline prices might mean to consumer's pocket books. Otherwise, why would WFMI be showing so much strength. The stock did not sell-off with the market last week. Instead WFMI is coiling for a breakout to new multi-year highs.
Aggressive traders may want to buy calls now. The high on Friday was $61.43. I am suggesting a trigger to buy calls at $61.55. If triggered we'll use a stop loss at $57.95. Our upside targets are $64.75 and $69.00.
FYI: The Point & Figure chart for WFMI is bullish with an $86 target.
Trigger @ 61.55
- Suggested Positions -
Buy the April $65 calls (WFMI1116D65) current ask $0.58
- or -
Buy the May $65 calls (WFMI1121E65) current ask $2.02
Entry on March xxth at $ xx.xx
Earnings Date 05/11/11 (unconfirmed)
Average Daily Volume = 1.9 million
Listed on March 19th, 2010