A plethora of puts
First, the good news: The sell-off in the market last week provided many opportunities to sell puts into price declines. The bad news? The weekly trend analysis of the major indices has shifted predominantly negative, with the Dow Jones Industrials in particular not even showing a hint of green.
Barring an immediate and substantial resumption of prices to the upside, this certainly suggests that the intermediate-term uptrend that began in late April/early May is over. Market action over the next week or two should offer clues as to whether this is just another downdraft in a larger, ongoing sideways market consolidation – with lower levels of about 1950 on the NASDAQ and 1160 on the S&P 500 – or the beginning of a more significant, protracted decline.
In the meantime, last week’s decline triggered a number of my limit orders to sell July puts on a variety of stocks. These included Agrium (AGU), Dow Chemical (DOW), Freeport McMoran (FCX), Lear (LEA), Merck (MRK), Time Warner (TWX), Weyerhaeuser (WY), and Whirlpool (WHR).
Some of these are examples of stocks that have pulled back after recent strength, while others have been declining or going nowhere for a while. The latter represent possible beaten-down “value” plays that may be in the process of forming intermediate- to longer-term bottoms.
I’m comfortable with the idea of owning any (or all) of these if they’re put to me. Nevertheless, in light of the likelihood of a new intermediate-term market downtrend, I’ll be remaining open to the possibility of taking “evasive” action in some of these positions if it seems warranted.
Meanwhile I’m also continuing to look for opportunities in some of the market’s strongest sectors: Retail (BBY, KSS, LDG, PZZA), Insurance (AFL, ALL, CB, FAF), Utilities (ED, ETR, EXC, GAS, NI), Health (ABT, HCR, UHS), and Tech (INTC). Most of these stocks have barely paused to catch their breath on their recent run-up, offering little or no opportunity to take advantage of any sell offs.
At the other extreme, I’m also watching several more stocks that are growing increasingly “oversold” on both an intermediate- and longer-term basis: Alcan (AL), Biogen Idec (BIIB), IBM (IBM), Molson Coors Brewing (TAP), and Tribune Co. (TRB). Further declines in these stocks – which seem likely – will attract my interest.
