Markets look to be hitting up against some resistance at this stage. Last week we posted that the strong rally in February might mean that the beginning of March will see a pullback of some sort. Technicals seem to indicate that’s what’s beginning to happen even if price movement continues upward.
Below is a look at the DJIA and SPX. Notice how the True Strength Indicator and Percentage Price Oscillator have already turned down. The PPO tells us the average of the 7-, 10- and 9-day moving averages while the TSI tells us the trend and overbought/oversold directions, which actually seem more obvious than simply looking at this indicator. These two indicators are leading indicators and suggest that the market has hit a point where it will pull back, or at least trade sideways until these signals can straighten themselves out. In any case, just about all of the technical indicators we follow are starting to point downwards.
Next, although Chinese stocks look to have bottomed, they have also hit overbought conditions, notably our JD holding.
We thought we had sold a March 8th CALL for $27.50 but it turns out we had sold a March 1st CALL, so, instead of getting called away, we decided to buy the CALL back and sell the underlying stock. Though we lost on the CALL, we made money on the appreciation of the underlying stock.
And remember how we had tried to buy BIDU instead of BABA? Well, look how that turned out:
Good thing we cut our losses on BIDU quickly. We’ll wait out this current rally as we suspect there will be some selling into strength (and that will possibly include any rally with EDC) as whatever the trade talks are agreeing to.
Finally, the SSEC has hit overbought territory and, more importantly, printed a tombstone candlestick, which often means that as prices went up during the day, people sold to get out.
So, look for Chinese stocks (and other world stocks) to pull back from their current levels.
And what about GOLD?
Well, the seasonal trade worked out pretty much to the day, yet we continue to hold AEM.to. We actually about back the CALLs we had sold and made a little bit of money on the trade. We’ll hold this stock and wait for another opportunity to sell another set of CALLs later in the month. The stock pays a dividend so we’re not too concerned about holding this one long term. Technicals suggest we could see a rally off of the current levels.
The TSX overall is in overbought territory and we wonder if companies are going to use this time to release all of the bad news they can as quickly as they can.
In keeping with what we outlined late last year as our approach to investing and trading for this year, we’re looking to get out of some positions and raise cash, likewise to keep purchasing dividend-paying stocks and ETFs and sell COVERED CALLs on some of our holdings.