Where Do We Go From Here?

For a big portion of Friday's trade it really looked as though bulls might find a way to build on Thursday's big gains.  The market began weak but quickly moved back into positive territory following a series of positive comments from Wall street analysts.  In fact, Wall Street analysts have been overwhelmingly bullish throughout the recent string of weak sessions.  To their credit, they have been correct -- at least they were well rewarded Thursday.  We have been looking for a technical rally of some significance.  All of the popular moving averages have been moving higher and that is positive.  The most recent weakness should be little more than a long overdue correction within the context of a rising market.  That's the theory anyway.  Friday we got a rally very close to the 20-day moving average at 549 but the market settled just off the session lows -- barely lower for the trading day.  While the close was clearly disappointing given the strength through the middle of the session, the daily chart still looks great -- with respect to a short-term rally oversold rally.  Given that both the Slow Stochastic and the MACD indicators are both turning higher, we are looking for the rally to resume in the early part of this week.      

Sector Analysis

There is a real battle taking place on trading desks throughout the world.  The bulls would have us believe that the world economy is strong and getting stronger and that very high commodity prices are justified.  Bears would us believe that higher commodity prices are the result of government meddling with the value of the US Dollar.  We won't speculate on the economics but we have been very comfortable on the long side of gold and the short side of energy.  We are not ready to make changes -- yet. 

The  Philadelphia Gold and Silver Index ($XAU) had a strong session on the back of a big rise in the price of gold.  Gold mining stocks have lagged somewhat but we are still quite confident we will get our price for the recommended calls. 

 

Oil Service Holders Trust (OIH) bounced back strongly Friday.  We are looking to be short into strength as we feel that the index is making a major top formation.  We now have a completed head and shoulders top pattern.  We just need a rally back to the "neckline" of this pattern.
 

 

The Semiconductor Holder Trust (SMH) was just a small fraction lower Friday.  We are looking for only modest gains in the immediate future and, the path of least resistance is lower so we need to be careful.  The secret when trading against the bigger trend is to not allow yourself to get greedy.  We have a new stop level.

Sector Portfolio

We had a good session Friday as gold mining issues progressed nicely on strength for the yellow metal and Chinese Internet stocks came to life once again.  There is a great deal of debate about the true value of Chinese Internet stocks and truth be told, despite our position, that is not our concern.  We like the stocks because they have corrected substantially in established up trends.   

Newmont Mining (NEM) continued to advance nicely Friday.  We are still looking for gains in the days ahead.  We see no reason to "panic" just yet.  We like prosperity.

Netease (NTES) began the session lower and that should have been more than enough opportunity to add a new call position.  As suggested above, the true "value" of Chinese Internet issues is not our concern.  We are playing the momentum game.  Netease looks as though it will make a new high. 

 

Stock Portfolio

 For Active Traders 

We closed our position in the OEX calls Friday for a small but solid profit.  We are not normally so quick to close winning trades but one must be careful on Friday afternoons after gigantic Thursday rallies.  We "chalk-up" our extremely tight stop level Friday afternoon to just that.  On the charts we got a pullback to support at OEX 542.  This level is support at both the 20 and 50-hour moving averages and should hold.  If this level fails bulls have further support at the recent breakout level at 539.  At any rate we are looking to add calls again at some point in the early part of this week.  The daily charts suggest that bulls still have room on the upside.  That is our focus. 

Traders' Portfolio

The above mentioned recommendations are deemed accurate they are not guaranteed nor can it be said that these strategies or recommendations will result in a profit. The Principals of the OEX Advantage may have or may in the future have positions in the securities mentioned above. Past performance is not necessarily indicative of future results. Before trading options you should understand the risks including the fact that when an option is purchased the entire premium is at risk. In addition, anytime an option is purchased or sold, transaction costs including brokerage fees are at risk. No representation is made that any account is likely to achieve profits or losses similar to those shown, or in any amount. Any account may experience different results depending on factors such as timing of trades and account size. Bedford & Associates does not offer refunds for subscriptions in whole or in part.