Another week, another rally
For the fifth week in a row all of the major market indices advanced, confirming once again the positive overall trend picture. The Dow Jones Industrials and Russell 2000 ended last week within a fraction of a percentage point of their 52-week highs, and it seems likely that it’s only a matter of time before they join the S&P500 and NASDAQ in new multi-year-high territory.
Many analysts are concerned here that the market is “overbought” – a technical condition suggesting that it has gone up too far and/or too quickly and is due for a sell-off. This may well be true from a short-term perspective, but it pays to keep in mind that “overbought” (and “oversold”) conditions also signal strength in a given direction, and more often than not suggest that, ultimately, the move has further to go.
Given the market’s mostly non-stop rally, there have been few opportunities to sell puts into weakness in stocks on my watchlists (although Abbott Laboratories (ABT), Lear Corp. (LEA), and Pfizer (PFE) are getting close). However I did take advantage of the ongoing strength to sell some December 60 calls against my long position in Exxon (XOM), which had been put to me at last week’s options expiration. For now I’m comfortable with either having it called away at next month’s expiration, or holding it longer term.
