Market Summary
Three vertical lines are
highlighted in the DOW Jones Industrial Average Index weekly chart below. The
first two yellow lines highlight the point where stock prices topped out in the
spring of 2010 and 2011 and culminated in price correction. The third line
marks the current year where stocks prices have dropped and we may be in the
initial stages of another downturn that appears to happen this time every
spring? At this point the current market pullback suggests that prices may have
topped out and a trend reversal similar to the previous two years stocks is
starting. Another major worry for the bulls are the recent bearish distribution
days (down days on higher than normal trading volume). Bearish distribution
days indicate that money managers are looking for the opportunity to sell
shares.
Investor Analysis
Most
of the major stock indexes have broke down below their price support levels and
the technical momentum indicators and oscillators are bearish. Until prices
reverse course the near term trend is down.
Possible Strategy
If
the stock prices do continue downward, some investors are considering a simple
strategy to profit from the DOW's possible move lower. For example, buying a DIA
ETF (Exchange Traded Fund) May expiration put option – DIA represents DOW Jones
Industrial Average. Purchasing the $129
strike price put would cost $2.23 per share (based on yesterday's close, but
would generate gains the further DOW dropped below $129 anytime prior to May 18th.
For an explanation on the basics of option trading and
description of how trade is set up go to http://www.theoptionplayer.com/strategies/
By Gregory Clay
