On Thursday, our market sentiment indicator touched 50%.  It is impossible to get any closer to transitioning from bullish to bearish than 50%.  On Thursday, the stock market rallied and the indicator moved back up into the low 50% range.  We remain bullish.

Shown below is a chart of the high relative strength stock ETF (PDP).  PDP closed at an all-time high on Thursday.

2013-04-29-A

On Thursday, our market sentiment indicator touched 50%.  It is impossible to get any closer to transitioning from bullish to bearish than 50%.  On Thursday, the stock market rallied and the indicator moved back up into the low 50% range.  We remain bullish.

Shown below is a chart of the high relative strength stock ETF (PDP).  PDP closed at an all-time high on Thursday.

2013-04-29-B

Like most of the other top 100 high relative strength stocks, JNJ has shown no weakness and has been immune to recent market volatility.  This explains how the ETF of high relative stocks can reach an all-time high on Thursday while our broad market sentiment indicator can be right on the cusp of turning bearish.

Where do we go from here?  Small caps, technology and the broad market have shown strength in the past week.  The price action suggests there is a high probability that the broad market will play catch-up with high relative strength stocks and move higher.  The best news is that if the emerging market rally fails in the next week or so, our stop-loss is tight with our indicator near 50%.  We recommend you stay fully invested.

Review of Positions

Open Positions

Charles Schwab (SCHW) – On March 7, we recommended to buy to open the SCHW Sep 18 Calls (SCHW130921C000018000) for $1.05 or less. As of Friday’s close, these options closed at $0.40.

Healthcare Trust of America (HTA) – On February 13, we recommended you buy to open the HTA Jul 12.5 calls (HTA 130720C0000125000) for $0.45 or better.  On Friday, this position closed at $0.40.  The stock had a closing on Friday and reports earnings on May 7th.

Liberty Interactive (LINTA) – On April 9, we recommended to buy to open the LINTA Jan 2014 22 calls for $1.55. As of Friday’s close, these options closed at $1.35.

Parting Shot: Market Sentiment Indicator

Shown below is our MSI (blue line) superimposed on the equal weighted S&P 500 measured by the ETF (RSP).   We are bullish on the stock market when the MSI is above the 50% mark and bearish when it is below.

2013-04-29-C

The scale for the MSI is on the left hand y-axis.  The MSI has declined from 56.1% to 50.0% last week.  With the MSI bullish in the intermediate term, we recommend staying long.

Have a great week trading,

Nick Atkeson and Andrew Houghton
Editors
Big Money Options

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