While the market lingered around the bottom of its persistent trading range last week, the rebound this week has bumped the major indices up towards the tops of their respective ranges. As a result, my indicators are now neutral to bullish, an upgrade from last week’s bearish readings, but the jury is still out as to whether the markets will break out or break down from here.
Last week, I mentioned four factors overhanging the markets, some which have more or less been resolved — at least in the market’s eyes. Greece’s plan has removed some of the pressure on the indices, as I expected, and there has been enough progress in the Iran nuclear talks to calm the market.
However, the Puerto Rican debt situation and the Chinese stock markets still remain as central concerns. From a technical point of view, the action in Chinese markets looks very similar to the blowoff we saw in the United States in 2000 when the tech bubble burst. But China is a big country and, like the U.S., its Fed equivalent, the People’s Bank of China, is pushing hard to prevent any kind of disaster.
In the midst of this range-constrained market, materials stocks and commodities are weakening. While gold is right on the edge of tumbling and hasn’t quite yet confirmed its downtrend, silver keeps getting weaker, and most other commodities markets are starting to break down as well.
Given the concerns the market still faces and the slower summer action, I am leaning slightly toward the bearish side. However, let me be clear that I am not a confirmed bull or bear at this juncture. This has been a very narrow and very tough trading range and, as to the question of what happens next, the answer is just not clear at the moment so keep a mix of bullish and bearish plays in your lineup.
The indicators are overwhelmingly bullish for American International Group (AIG) with the MACD, momentum and the Williams Percent Range (%R) all turning green. AIG also made a very bullish triple moving average crossover of the four-day, nine-day and 18-day MAs.
Buy to open the AIG Sep 67.50 Calls (AIG150918C00067500) at $0.60 or lower.
After entry, take profits if the stock price hits $66.80 or the option price hits $1.50. Exit if the stock price closes below $62.90. Note: This is a relatively thinly-traded option chain, so you may need to be patient to get established at my recommended entry. Avoid buying a large number of contracts at once to prevent wild price swings; instead, enter your orders in smaller lots of five or 10 contracts.
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