Market bottom: Not there yet
The market trend picture remains negative, and, despite last week’s “plunge,” the sentiment picture did not dramatically improve as might have been expected. While it’s quite possible that – as with oscillators and other technical indicators – the market can successfully retest the bottom with sentiment indicators at levels well above/below a previous extreme (and thus set up a “positive divergence”), I wouldn’t count on it.
So, like last week, the market seems to be in a position of “getting closer, but not there yet.” A move back down to the March lows in the S&P 500 (~1256) or lower seems highly likely, although of course a significant rally could emerge at any time.
Key near-term support levels on the S&P 500 are now 1250-1260, 1220-1230, ~1200, and ~1170-1180. For the DJIA, near-term support appears to be at around the 11,000-11,100 and ~10,700 levels.
New positions
Amgen (AMGN) – Last Monday I sold some January 2009 45-strike covered calls against my long position in AMGN (purchased 3/15/07) as the stock rallied:
AMGN has been perking up lately and is clearly in a short-term up-trend although its intermediate-term trend remains down. The stock looks like it could be headed to test upside resistance at 49-50 or even the ~52 level. Nevertheless, this position no longer fits with my investing strategy and I should have taken action some time ago. Rather than sell it outright at this point (where presumably there’s not a lot of downside risk remaining) I’ve decided to sell covered calls against it to reduce my ultimate loss in the position (if called in January as I expect is likely) or at least to dramatically reduce my net cost basis in the position and generate some income in my account.
Copano Energy, L.L.C. (CPNO) – On Thursday I sold some in-the-money July 35-strike puts on CPNO as the stock dropped along with the market and other stocks in this sector:
The short-term trend for CPNO is clearly down, although its intermediate-term trend isn’t so clear. A drop back to the low 30s would certainly not be surprising, although the stock is approaching oversold levels and is relatively outperforming the market and other stocks in this sector in that respect. I’m looking to add CPNO to a basket of other Master Limited Partnerships (MLPs) in my account to boost my account’s income-producing ability over time.
Developers Diversified Realty (DDR) – Last Wednesday I sold some January 2009 40-strike covered calls against my long position in DDR (purchased 6/23/08) as the stock and the market rallied:
While DDR’s short-term trend is clearly down, its intermediate-term picture remains mixed, and it is once again (like much of the market) trading at or near oversold levels. Nevertheless I decided to cushion against a further decline by selling the January 2009 calls against the position. This significantly lowers my cost basis in the position and locks in a profit if the stock is eventually called. In the meantime this REIT offers a dividend yield of almost 8%.
Energy Transfer Partners LP (ETP) – On Friday I sold some July 45-strike puts on ETP as the stock dropped along with the market and other stocks in this sector:
The intermediate-term trend for ETP (and other MLPs) is down, or mixed at best, and I wouldn’t be surprised to see it go lower in the days/weeks ahead. On the other hand, it’s “oversold,” a condition from which it could rally for a while as well at anytime. If I end up being put the stock, it will be part of what is planned to be a longer-term holding in a basket of higher-yielding stocks and MLPs in my account.
Enterprise Products Partners LP (EPD) – On Thursday I sold some July 30-strike puts on EPD as the stock dropped along with the market and other stocks in this sector:
See my comments on Copano Energy and Energy Transfer Partners LP (above).
General Electric (GE) – Last Wednesday I sold some January 2009 27.5-strike covered calls against my long position in GE (purchased 6/23/08) as the stock and the market rallied:
Even though I’m approaching my position in GE as a long-term holding, the stock’s increased momentum to the downside during the previous week suggests an increased likelihood of further weakness (for example, a test of the 24-25 level), so I felt it prudent to put on this longer-term covered call position to help cushion against a further decline and dramatically lower my cost basis in the position while still locking in a profit if the stock is eventually called. Depending on what happens in the coming weeks/months I may end up buying these calls back at a profit, leaving them to expire OTM, or letting the stock be called away in January.
Plains All American Pipeline LP (PAA) – On Friday I sold some July 45-strike puts on PAA as the stock dropped along with the market and other stocks in this sector:
See my comments on Copano Energy and Energy Transfer Partners LP (above).
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include Frontline (FRO) and Kroger (KR).
This week’s interesting “oversold” candidates include Emerson Electric (EMR), Energy Transfer Partners LP (ETP)*, Hartford Insurance Group (HIG), Home Depot (HD), Huaneng Power (HNP), Kimberly-Clark (KMB), Oneoke Partners LP (OKS), PPG Industries (PPG), TEPPCO Partners LP (TPP), Tomkins PLC (TKS), Toyota Motor (TM), Valspar (VAL), and Weingarten Realty Investors (WRI).
* I currently own and/or have an options position on this stock.
