Financials, sentiment pointing the way higher?
The market trend picture remains mostly negative, but is reflecting some positive short-term signs. Last week’s technical action in wake of the Bear Stearn’s buyout, and the still overwhelmingly bearish sentiment on the part of most market observers increase the odds that the market may have found a bottom (or is in the process of bottoming).
The relative outperformance of the financial sector is also a positive. Key levels to watch on the S&P 500 are ~1270 (a near-term break below which would suggest a climactic panic sell-off to lower levels) and ~1350-1360 (a move above which would change the currently negative intermediate-term trend picture to something more positive).
Options Expiration Results
- Alcoa (AA) – The March 37.5-strike calls I sold on 2/25/08 against my long position in AA expired out of the money (OTM) for a 4-week net return of about 5% on the position.
- Allstate (ALL) – The March 42.5-strike puts I sold against ALL on 2/14/08 expired OTM for a 5-week net return of about 1.7%.*
- American Eagle Outfitters (AEO) – The March 15-strike puts I sold against AEO on 3/06/08 expired OTM for a 2-week net return of about 0.9%.*
- Bank of America (BAC) – The March 40-strike puts I sold against BAC on 2/19/08 expired OTM for a 4-1/2-week net return of about 2.6%.*
- Barclays (BCS) – The March 35-strike puts I sold against BCS on 2/21/08 expired OTM for a 4-week net return of about 2.9%.*
- Citigroup (C) – The March 30-strike calls I sold on 1/29/08 against my long position in C (purchased 11/19/07) expired OTM for a 7-week net return of about 5% on the position.
- Countrywide Financial (CFC) – The March 6-strike puts I sold against CFC on 2/28/08 expired in-the-money (ITM) and I was put the stock for a net cost basis of about $5.87 per share.
- Darden Restaurants DRI – The March 25-strike puts I sold against DRI on 3/06/08 expired OTM for a 2-week net return of about 1.3%.*
- General Growth Properties (GGP) – Last Wednesday, as a defensive measure and not realizing the market was closed on Good Friday
, I covered the 30-strike puts I had sold short against GGP on 2/21/08 for a four-week net return of about 1.4%. (Had I realized at the time that options expiration was only one day away and not two, I would have let these play out, which would have resulted in a net return of about 2%.)* - Hartford Financial Services Group (HIG) – The March 65-strike puts I sold against HIG on 2/29/08 expired OTM for a 3-week net return of about 0.9%.*
- Home Depot (HD) – The March 25-strike puts I sold against HD on 2/05/08 expired OTM for a 6-1/2-week net return of about 3%.*
- Kraft Foods KFT – The March 30-strike puts I sold against KFT on 3/13/08 expired OTM for a 1-week net return of about 1.1%.*
- M.D.C. Holdings (MDC) – The March 35-strike puts I sold against MDC on 3/03/08 expired OTM for a 3-week net return of about 1.5%.*
- MetLife (MET) – The March 50-strike puts I sold against MET on 2/11/08 expired OTM for a 6-week net return of about 2%.*
- Wal-Mart Stores (WMT) – The March 47.5-strike puts I sold against WMT on 2/15/08 expired OTM for a 5-week net return of about 2.1%.*
- Whole Foods Market (WFMI) – The March 35-strike puts I sold against WFMI on 2/15/08 expired ITM and I was put the stock for a net cost basis of about $33.70 per share.
- Verizon (VZ) – The March 35-strike puts I sold against VZ on 2/19/08 expired OTM for a 4-1/2-week net return of about 2.3%.*
New positions
New York Community Bancorp (NYB) – On Thursday I sold some April 17.5-strike calls (prematurely as it turns out) against my long position in NYB as it rallied strongly along with the rest of the financial sector:
Although close to being short-term overbought, NYB is in a short- and intermediate-term uptrend, and potentially made a major bottom in January at the 14-15 level. Significant upside resistance is at 19 to 19-1/2 – a move above that level could suggest a move to the 21 level. Certainly any move below the recent lows at the 15-1/2 to 16 level would change this picture.
Wachovia Corp. (WB) – On Thursday I sold some April 32.5-strike calls (also apparently prematurely) against my long position in WB as it rallied strongly along with the rest of the financial sector:
WB is rallying from deeply oversold conditions and has plenty of room to go higher. However, it remains in an intermediate-term downtrend. A move above the 33-34 level would change this picture.
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include Equity Residential (EQR), Fastenal (FAST), H&R Block (HRB), Hudson City Bancorp (HCBK), Ross Stores (ROST), and Wal-Mart Stores (WMT).
Stocks of interest in this week’s “oversold” scans include Beckman Coulter (BEC) and International Paper (IP).
* As always, the return on “cash secured” put sales was based on the premium received from the sale of the options (minus commissions) against the unmargined capital set aside to pay for the possible assignment of the stock.
