9:15am (EST)
Out with the old, in with the new. Sorta.
The Dow managed to extend its May gains with a 221 point pop on Monday. The 2.6% advance took the index to 8,721 and right up to resistance. The strong close has the Dow challenging the 9,000 level and the high for the year of 9,175.
The “rebound” we have seen from the market in general has been profound. Just like the selling pressure on the way down was. A couple of stocks that could give the Dow some added momentum were the two added yesterday, Cisco Systems (CSCO, $19.50, up $1.00) and Traveler’s (TRV, $41.91, up $1.25).
I’m a bigger fan of Cisco and it was a solid pick for the Dow. One of the big reasons Cisco was added is because of what is does and the role it plays in building out the Internet. The telecom equipment company has long been considered a “blue chip” and many on Wall Street were happy with this choice.
When a stock is added to an index, it usually means that institutions will soon been buying the stock. Cisco has some serious resistance at $20 but if we can break that level and hold, we could see the stock at $22-$23 real soon.
Investors are nervous and many on Wall Street have been saying “we are due for a pause”. Well, they have been saying that for a couple of months and many were calling for a dip in May. It didn’t happen. Most of the talking heads have been saying to “buy” a stock BUT to also buy put option protection. That is becasue they don’t know where the market or stock is headed. The market is always changing and that is what makes a market. Some of you have been writing me saying you are scared of a correction.
Look, the market is always changing and some of our readers have never been thru a market like this. Before the Internet bubble, I remember seeing brokerage firms setting up shops in malls across America as the Nasdaq soared to 5,000. There was a young broker who was trying to sell me on the market. He was 19 years old. I’m not saying that was a bad thing but I asked him if he was ready for a “bear” market. He said we weren’t getting one but the fact is he had never been through a bear market. A lot of people were hit hard back then just like they were when the market hit its March lows this year.
The point I’m trying to make is that there are always going to be bull and bear markets (and sideways markets) but the key is preparing yourself for them. That is why I am both a BULL and a BEAR. If we head lower then fine. We will start buying put options if the price is right and we see some good opportunities. However, that time is not here yet and we will see clear signs of a correction if we do get one.
Rick Rouse
Rick@OptionsMentoring.com
