Mother Teresa was asking for opinions in an earlier thread about Altria Group (NYSE:MO) so I’ve been periodically checking in on this stock. A few interesting developments have occurred on the MO chart which I believe to be bullish and a good time for an entry.
Looking at the chart below, the price is right at the $85 support set up at the end of Aug 06 (blue horizontal line). It also just bounced off the upward trendline (red). Furthermore, if you look at the small green circle at the bottom right of the chart, the Slow Stochastic indicator has just crossed upwards, indicating a potential buying opportunity. The bigger green circle above shows an interesting area of the MACD indicator. When the blue line crosses the red line, it’s a bullish signal. This hasn’t happened yet but there appears to be divergence of price and indicator. What this means is that MO has been trending downwards recently with lower lows but the MACD indicator (black part) shows higher lows in the same time frame. This implies a reversal to the upside will happen soon. Thus, I feel that it is likely the MACD will produce a bullish signal soon.
The last time MO was at $85 and trending upwards, it took a month to get to $90. I think it’ll do the same this time around – perhaps up to 6 weeks long.
The stock is too pricey for me but I am interested in buying a call option. They are availabe at a strike price of $85 (just in the money) or at $90 (rather far from the money). The next question is what month should I buy. March is obviously out of the question and given that I am giving this stock 6 weeks to hit its peak, that’s around the expiry date for the April options. Do I buy $85 April (@$2.40) or $85 June (@3.60). A more aggressive trade would be $2.40 and since I’m just opening up a small position, I think I’m leaning towards the April options.
Your opinions are welcome.