It’s not easy staying green
The recent weakness in the market has clearly shifted the overall trend status back to negative, as indicated by the dominance of bold red trend periods in the weekly trend arrays of the major market indices. Last week’s decline was enough to trigger some short-term “oversold” readings, which, in a range-bound market – such as the one we’ve had for much of this year – could indicate an approaching bottom and a possible buying opportunity.
On the other hand, “oversold” (or “overbought”) conditions also commonly occur at the beginning of new down (or up) trends, as harbingers of the new market direction. In this case, a market break below 1190 or so on the S&P 500 and 2000 on the NASDAQ could indicate that a more significant downturn is in progress.
Last Thursday one of my limit orders finally triggered, and I sold some October 47.5 puts on Allstate (ALL) as it briefly traded down to the 50 level on mounting fears (panic?) over the potential impact of hurricane Rita. The stock has since rebounded sharply and I’ll be tempted to take my profits and run if the option premium shrinks much further in the near term.
Other stocks on which I’ve recently attempted to sell puts include Bank of America (BAC), DuPont (DD), General Motors (GM), Lear Corp. (LEA), Merck (MRK), and Whirlpool (WHR). The market’s current negative status suggests that there could be plenty of other opportunities available before long as well.
