How Much Bullishness is Left?

Dear SlingShot Trader Subscriber,

As the S&P 500 draws ever closer to its May 2, 2011 highs, the question on every trader’s mind is, “Is there enough bullishness left in the market to push the S&P up and through resistance?”

Stocks have been surging higher since mid-December 2011, and we’ve seen the Dow Jones Industrial Average break up to new 52-week highs, but how high can the market go? After all, isn’t there still some “oh-my-gosh-Greece-could-default-even-if-they-get-a-bailout” thing going on in Europe?

Don’t Fight the Tape

Any news report you look at talks about the pending doom that the global economy is facing if the Eurozone can’t get its act together. But at the same time, Wall Street keeps buying stocks and sending them higher and higher.

The old adage “don’t fight the tape” has never been as applicable as it is right now. That means you could try and base your trading on the pessimism in the news, but if you do, you will only be fighting the tape. In most cases, fighting the tape only leads to mounting losses and frustration.

However, if you are bearish on the market right now, there are a few warning signs that could turn the market back around to fit with your investment viewpoint. One of those warning signs is the NYSE Bullish Percent Index.

NYSE Bullish Percent Index

The NYSE Bullish Percent Index is a point-and-figure based market breadth indicator. It compares the number of stocks listed on the New York Stock Exchange (NYSE) which are showing buy signals on their point-and-figure charts, with the number of stocks that are showing sell signals.

Looking at the chart below, you can see that currently 75% of the stocks listed on the NYSE are showing buy signals on their point-and-figure charts.chart1
NYSE Bullish Percent Index – Courtesy of StockCharts.com

This is a bullish sign for the market, to be sure. However, it is also a warning sign. Any time the NYSE Bullish Percent Index climbs up above 70%, it is considered to be overextended – similar to when an oscillating technical indicator, like the Relative Strength Index (RSI), rises above 70%.

Being above 70% is not a guarantee that the index is going to turn around immediately, but it does show that the market is becoming more and more overextended, and the more and more overextended the market becomes, the less capable it is of summoning a new burst of bullishness to break up and through resistance.

Money on the Sidelines

One important fact we have to keep in mind, however, is the amount of money that is still sitting on the sidelines. We have been watching the S&P 500 climb higher and higher this year on what seems to be ever decreasing levels of volume. If we were to see this money suddenly come back into the market, it could provide us with just the bullish catalyst everyone is looking for to push the S&P 500 up and through its resistance level and on to new 52-week highs.

Of course, we all know that is a big “if.” This money is on the sidelines for a reason: Investors are nervous, and rightly so.

The Bottom Line for Next Week

We have had a lot of success this past week by not fighting the tape, and we plan to continue trading with the bullish market until we get data that suggest the trend is changing. These data could come sooner rather than later though, so we are watching closely to see what happens in Greece this week. But for now, let’s keep enjoying the better-than-expected earnings announcements we’re getting.

This Week’s Events

Here are some of the news events that we may trade in the next week or so. We’ll be discussing some of these in tonight’s webinar.

Feb. 8 – Akamai (AKAM) Earnings announcement
Feb. 9 – Bank of England (BOE) announcement
Feb. 9 – European Central Bank (ECB) announcement
Feb. 9 – Weekly initial unemployment claims
Feb. 10 – International trade
Feb. 10 – Consumer sentiment
Feb. 14 – Retail sales
Feb. 15 – Industrial production
Feb. 15 – FOMC meeting minutes

TRADE REVIEW

When it’s time to open or close a trade, we’ll send you alerts via e-mail. You also can sign up to receive text messages regarding our trades. For more info about our SlingShot Trader portfolio, you can read trade alerts here and view our portfolios here. You can also see more trade-specific details by clicking on the trade links below.

Positions Opened

These are the SlingShot Trader positions we opened during the past week of trading that we have not yet closed.

Akamai (AKAM)On February 7, we recommended you to “buy to open” the March 35 Calls for $1.85 or less.

Positions Closed

These are the SlingShot Trader positions we closed during the past week of trading.

Coinstar (CSTR)On February 7, we recommended you “sell to close” the March 50 Calls. We closed the position for $10.00 for a profit of 156.41%.

Beam, Inc. (BEAM)On February 3, we recommended you “sell to close” the March 52.5 Calls. We closed the position for $1.85 for a loss of 23.33%.

Qualcomm (QCOM)On February 2, we recommended you “sell to close” the Feb 60 Calls. We closed the position for $1.90 for a loss of 61.02%.

Top Trades Now

These are the current SlingShot Trader positions that we still recommend getting into now, assuming you haven’t already bought a full position.

Akamai (AKAM) See Positions Opened above.

Webinar Preview: Join Us Tonight at 6 p.m. ET

Every Wednesday at 6 p.m. ET, we host our live webinar, in which we’ll review this weekly newsletter, discuss coming events in more detail and walk through our Top Trades. We also encourage you to submit your questions live during the session. We want to do everything we can to help you become a successful options trader, which is why you’ll have live access to us for an hour every week.

And if you have any questions or comments you would like to send us in advance of the live session — or anytime during the week — you can write to us at johnandwade@slingshot-trader.com.

If you can’t attend the session live, you can watch the archived version on our website in the “Live Weekly” section. It’ll typically be posted within about two hours of the end of the live session.

Sincerely,

 

John Jagerson and Wade Hansen
Editors
SlingShot Trader