Ingredients for a bottom still in place
Last week the market sold off after encountering resistance at the S&P 500′s 1350-1360 level, leaving the intermediate-term trend still generally negative (or at best neutral). The ingredients remain in place for a bottom to have formed or still be in the process of forming, but further probes to the downside – which I’ll continue to view as put-selling opportunities – can’t be discounted.
New positions
Bank of America (BAC) – On Tuesday I sold some April 37.5-strike puts on BAC as the stock fell on weakness in the financial sector:
BAC’s intermediate-term trend is currently unclear, but for now appears to be relatively neutral if the price remains above the 36-37 support level. A break below that could suggest a move to support in the low 30s.
BCE, Inc. (BCE) – On Thursday I sold some April 30-strike puts on BCE as it weakened on recent reports of the cancellation of several planned mergers and acquisitions, raising concerns among some market participants about the planned buyout of BCE for about $43.20 per share sometime in the second quarter:
Currently the short- and intermediate-term trend of BCE is down and the stock appears headed to near-term support at the 33-34 level. A break below that would suggest a move to lower support at the 30-31 level, or even back down to the 26-27 level – a move that might be expected if the planned buyout deal is cancelled. In any event, I’m comfortable owning this stock at below $30 per share.
Countrywide Financial (CFC) – On Monday I sold some April 6-strike calls against my long position in CFC (purchased 3/22/08) as it rallied along with the rest of the financial sector:
As with most stocks in the financial sector, the intermediate-term trend of CFC appears down or sideways but is exhibiting positive divergences on price oscillators. By selling covered calls against the position I’ve significantly lowered my cost basis and will either make a profit if the stock is called in April, or be long the shares – which represent an opportunity to end up with BAC shares at lower prices when the planned buyout deal closes later this year – at a reduced cost. (In the planned deal, CFC holders will receive 0.1822 shares of BAC for each share of CFC.)
Verizon (VZ) – On Tuesday I sold some April 35-strike puts on VZ on weakness in the telecom sector:
VZ’s intermediate-term trend is unclear, although shorter term the trend appears to be up, with near-term support at about 35. Intermediate-term downside support appears to be at 33-34.
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include Patterson-UTI Energy (PTEN) and William Wrigley Jr. (WWY).
Stocks of interest in this week’s “oversold” scans include Aqua America (WTR), AstraZeneca (AZN), Barnes Group (B), Consolidated Edison (ED), Cooper Tire & Rubber (CTB), PPG Industries (PPG), and SCANA Corp. (SCG).
