Bear Stearns: The Sequel?
Some real fear and panic began to appear in the market on Friday as concerns over Fannie Mae (FNM) and Freddie Mac (FRE) sent the market down by over 2% at one point during the day (as measured by the S&P 500). This helped move sentiment indicators closer to the sort of extreme levels that typically coincide with market bottoms, suggesting that a bottom of some sort may be near – in time at least, if not necessarily in price.
The market trend picture of course remains strongly negative, and it’s certainly likely that the market may drop to still lower support levels before finding a bottom – especially if concerns over Fannie Mae and Freddie Mac continue to escalate (although it seems likely that the government will be prepared to step in with a rescue plan if this occurs). Near-term downside support from here appears to be at 1220-1230, 1190-1200 and ~1170 for the S&P 500; and ~11,000, 10,700, and 10,300-10,400 for the DJIA.
Bottom line: while further downside action seems likely in the short term, the probabilities appear high that the current downtrend is either in or nearing its terminal phase. Keeping this in mind, I’m continuing to place limit orders to sell puts on selected stocks as opportunities arise, but at lower price levels than I normally would otherwise.
New positions
Hartford Insurance Group (HIG) – On Friday I sold some 50-strike January 2009 puts against HIG in my IRA account as the stock sold off along with the market and other stocks in the insurance sector:
HIG is clearly in a short- and intermediate-term downtrend, but is now highly “oversold” and currently trading near important downside support around the 57-58 level. The next lower support levels appear to be about 54, 49-50, and ~45. The stock appears to be a good value at these levels (or lower) and currently pays out an annual dividend of $2.12 per share. I’d be comfortable owning it at the $46-47/share price that would be my net cost basis if it’s ultimately put to me. (At those levels HIG’s annual dividend yield will be ~4.5%.)
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include Abbott Laboratories (ABT) and Family Dollar Stores (FDO).
“Oversold” candidates of interest this week include Genuine Parts Co. (GPC), Harley Davidson (HOG), Illinois Tool Works (ITW), Lowe’s (LOW), Taiwan Semiconductor Mfg. (TSM), Target (TGT), Tesoro (TSO). and Valero Energy (VLO).
