Last week’s rally: A one-day wonder?
The lack of any follow-through (at least so far) to last Wednesday’s strong rally supports the view – also reflected in the all-red trend analysis picture – that the major market indices remain in an intermediate- to longer-term downtrend. In fact by the end of last week the NASDAQ and Russell 2000 were all the way back down to their near-term support levels of about 2020-2030 and 665-670, respectively.
I’ll continue to view any rally from these levels as a “set-up” for another decline (unless or until the analysis indicates otherwise). On the other hand, if the market continues to break down, things could “get ugly.” I’ll be keeping this in mind when I’m placing my limit orders to sell puts on selected stocks.
Sector ETF highlights
The trend spectrums for the various sector ETFs are mostly negative, with the exception of those of the Consumer Staples Sector SPDR, Health Care Sector SPDR, and Utilities Sector SPDR, which are positive. The Financials Sector SPDR is also looking more positive than negative at the moment. The Energy Sector SPDR, on the other hand, which has been positive, has now turned mostly negative.
Options expiration results
- Ameren (AEE) – The July 50 calls I sold on 6/16 against my long position in AEE expired in the money (ITM), and the stock was called, for a nine-week net return of about 4.3%, not including a dividend payment.
- General Maritime (GMR) – The July 35 calls I sold on 6/20 against my long position in GMR expired ITM, and the stock was called, for a four-month net return of about 13%, which includes a dividend payment.
- Fresh Del Monte (FDP) – The July 17.5 calls I sold on 6/28 against my long position in FDP expired out of the money (OTM). The stock has long-term support at the 15 level and is currently oversold and showing positive divergences on its price oscillators – all possible positive signs for the intermediate or longer term. However FDP doesn’t pay much of a dividend any more, so I’m not sure how patient I’m going to be with it here.
- J.P. Morgan (JPM) – The July 40 calls I sold on 6/22 against my long position in JPM expired ITM, and the stock was called, for a two-year net return of about 18.5%, including dividends.
- KB Home (KBH) – For a while last Wednesday as KBH rallied back over 41 it looked as if the July 40 puts I sold against it on 7/13 might actually expire OTM. As it turned out they expired ITM, and I was put the stock for a net cost basis of about 39.10.
- Freeport McMoran (FCX) – The July 35 puts I sold on 6/13 expired OTM, for a 5-1/2-week net return of 1.9%.*
New positions
Bristol-Myers Squibb (BMY) – Last week I sold August 25 calls against my long position in BMY (purchased in April) as it rallied up toward 26:
Although it looks like it may well go higher, I decided I’d take the current dividend payment and be willing to have the stock called at a decent locked-in profit rather than wait.
UST Inc. (UST) – UST has had a nice rally up toward the 50 level, and last Wednesday I sold some August 50 calls against my long position in the stock (purchased in May):
It looks like it has higher to go near term. Whether it’s above or below 50 at August’s options expiration is another question, and one that I’m not too concerned about either way right now.
Unilever (UN) – UN also rallied nicely last week, and on Thursday I sold some August 23.375 calls against my long position in the stock (purchased in May):
If my shares are called next month I’ll have made a decent profit; if not, I’ll have significantly lowered the net cost of the position.
Abbott Labs (ABT) – ABT also had a strong rally last week, and on Friday I sold some August 45 calls against my long position in the stock (purchased in April):
If my shares in ABT are called next month I’ll have made a decent profit on the shares as well as collected a dividend payment.
Watchlist
Utilities (like Consolidated Edison (ED), Dominion Resources (D), and Duke Energy (DUK)) and health-care-related stocks (like Baxter (BAX) and HCA Inc. (HCA)) dominated the “upside strength” scans this week. Also of interest was PepsiCo (PEP) and Wells Fargo (WFC).
Once again there’s no shortage of interesting stocks showing up on my “oversold” scans this week. New ones of interest include New York Times Co. (NYT), Fastenal (FAST), First American Corp. (FAF), Parker Hannifin (PH), and Tidewater (TDW).
* As always, the return on these “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.
