Thursday, July 30, 2009
The Dow Industrial and other major averages continued their advances this morning. I have taken a pause from the market during the past month to take my initial look at what is going on. An undeniable pattern in the market shows that we seem to be moving into a pennant formation. There is a heavy downtrend still in place but it appears that the market has been forming a very nice reverse head and shoulders formation. This cannot be ignored.
Size, the all important indicator for me is rising. You cannot deny this strengthening in the market and need to be prepared for additional upside. The Dow can surely reach the top of the pennant or above the 10,000 mark. Still, be aware that even in this chart, the overall trend for volatility is falling and current size has risen just to the trendline.
WHAT'S NEXT FOR BOEING??
As one might expect, Boeing, being a Dow component, reflects the overall market's pennant formation. Here I can see a possible move to 47 on Boeing and then should it break to the upside, a move to 55 would not be out of the question. I expect that this move would happen fairly soon and purchased some September 45 calls this morning. I had previously had a long term 45 put position on the stock which I sold for a double. I entered into a new January 40 put position not too long ago around 43.75 and continue to hold this position for the longer term. Fortunately with options, I can participate in a move either up or down. As the Boeing stock price continues to move sideways, expect option premiums to diminish and perhaps provide better option buying opportunities for those wishing to participate in this play.
It's important to note that Boeing has not participated in the market move to the extent that much of the rest of the market has. Under increased pressure because of delays in the major Dreamliner project, it's hard to paint a bullish scenario for this stock. However, the market is seldom rational and should the Dow average continue to push ahead, as the statistical evidence shows that it should, we may find Boeing suddenly turning into a star performer, leading the Dow higher.
While prospects for continued gains appears strong, I urge caution and look for opportunities to add puts, take profits and otherwise, prepare for a potential test of the lows.
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