Market action, sentiment = caution signal
It’s not clear yet how significant last week’s market top will turn out to be, but the market trend picture is now reflecting a negative (or at best mixed) outlook. While things seem a bit oversold short term, recent market action and a still negative intermediate-term sentiment picture suggest that caution may be warranted.
New positions
Developers Diversified Realty (DDR) – On Wednesday I sold some June 40-strike puts on DDR as the stock fell along with the rest of the market:
DDR is in a short-term downtrend within an unclear intermediate-term trend, and has currently fallen to near-term downside support at the 39-40 level. A break below this would suggest a test of the 36-37 level, on the way perhaps to a possible retest of the March lows. I’ve been looking to add some REITs to my portfolio and won’t mind starting to accumulate some DDR at around these levels if it’s put to me.
Diana Shipping (DSX) – On Thursday I sold some June 30-strike puts on DSX as it sold off from recent highs:
Despite its sharp short-term pullback, DSX remains in an intermediate-term uptrend. Near-term downside support is at the ~32 and 30 levels. Near-term upside resistance appears to be at ~35-36.
General Electric (GE) – On Friday I sold June 30-strike puts on GE as the stock sold off with the rest of the market:
GE remains in a short- and intermediate-term downtrend, but is becoming oversold and approaching near-term support at the ~29-30 level. The stock appears to be a reasonable value at these levels (or below) and offers a dividend yield of over 4%.
Jabil Circuit (JBL) – On Monday I sold January 2009 12.50-strike covered calls against my long position in JBL (purchased 01/21/08) as the stock tested upside resistance at the ~12-13 level:
I missed an easy opportunity to sell calls against this position (and thus reduce my net cost basis) back in February when the stock rallied briefly to the 15 level while I was traveling during a business trip. The sale of January ’09 calls now reduces my cost basis in the position to under $13/share and will help cushion a likely retest of the lows. If the stock moves up and is called at expiration, I’ll end up taking a small loss on the position.
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include General Maritime (GMR), Kraft (KFT), Leggett & Platt (LEG), New York Community Bancorp (NYB), NSTAR (NST), Packaging Corporation of America (PKG), and Zenith National Insurance (ZNT).
“Oversold” candidates of interest this week include Allied Capital (ALD), Carnival Corp. (CCL), LSI Industries (LYTS), Nokia (NOK), Pinnacle West Capital (PNW), Pfizer (PFE)*, Regions Financial (RF), and TCF Financial (TCB).
* I currently own and/or have an options position on this stock.
