Looking to buy weakness
Last week’s market sell-off has probably left the overall trend picture negative or at best mixed/negative (although I’m still away from my main PC and unable to run the program that calculates this). A retest of – or even a break below – the recent lows remains a distinct possibility; however, so does a continuation of the rally from those lows.
Given the continuing levels of bearish sentiment, and the extremes of which that occurred at the recent lows, I’m continuing to view pullbacks as put-selling opportunities. I’m focusing mostly on defensive names and on beaten down value opportunities that I’m perfectly comfortable owning for the longer term if they are put to me.
New positions
Countrywide Financial (CFC) – On Tuesday I sold some February 6-strike puts on CFC as the stock dipped in sync with that of BAC. I view this as either an opportunity to end up with some BAC shares at lower prices (when the buyout deal closes later this year and CFC holders receive 0.1822 shares of BAC for each share of CFC) or as a reasonably low-risk way to pick up some option premium in the meantime. (Of course it’s possible – although unlikely – the deal won’t go through as planned, so as always I’m keeping the position size to a small percentage of my overall account.)
Home Depot (HD) – On Tuesday I sold some March 25-strike puts on HD as it fell on market weakness. The 25 and 20 price levels appear to offer strong support, while the 30 level is strong resistance. I’m comfortable owning this stock at 25 or below.
New York Community Bancorp (NYB) – On Monday I sold some February 17.5-strike puts on NYB on weakness. Support is at 17 and 16; the 18 and 19 levels appear to present strong resistance.
Watchlists
I’m away from my main computer and unable to run my usual watchlist scans this week.
