Is market sell-off “third wave” of massive correction?
The markets appear headed to ultimately test – or perhaps even break below – their 2002 lows as part of what now appears to be a huge sideways correction of the bull market of the 80s and 90s. The good news is that, if true, this “third wave” event may well be setting the stage for a significant longer-term bottom of some sort.
The sentiment indicators are now back to or exceeding levels that have occurred at or near previous lows, and price oscillators are about as oversold as they’ve ever been, so the ingredients are in place that would be consistent with a bounce (or something more significant on the upside) occurring at any time. At the same time, key near-term downside support is now at the 2002 lows – i.e., about 7,000-7,500 for the DJIA and 750-800 for the S&P 500. The next lower support below that appears to be at about 6,500 and 725, respectively.
New positions
Ingersoll Rand (IR) – On Friday I sold some March 15-strike puts on IR in my IRA as the stock plunged lower with the rest of the market near the day’s lows:
Most stocks appear to be falling back down to around their 2002-2003 lows, and IR is no exception. For IR, this would be right around the 15 level, which might be expected to provide significant support. The stock has a history of good dividend growth, and at these levels appears to be a solid value from a long-term appreciation/dividend-growth perspective.
Philip Morris (PM) – On Monday I sold some October 45-strike puts on PM in my IRA as the stock dropped below the 45 level:
The stock continued to fall sharply along with the rest of the market for the remainder of the week, and, like the rest of the market, could rally sharply at any time from these dramatically oversold levels. There’s really no price history to look at for PM, but going forward the company is expected to be able to grow faster than Altria Group and seems a reasonable buy here as a long-term holding in my IRA, with a starting dividend yield of about 5%.
Watchlists
No stocks of interest showed up on this week’s “upside strength” scans.
The following stocks showed up on this week’s “oversold” scans of beaten-down stocks of interest, suggesting that likely further near-term weakness may represent a buying opportunity: 3M (MMM), Coca Cola (KO), ConocoPhillips (COP), Eli Lilly (LLY), Manpower (MAN), Parker Hannifin (PH), Pepsi Bottling Group (PBG), Progress Energy (PGN), Royal Dutch Shell plc (RDS-A), and Sysco (SYY).
