Market bottoming or consolidating?
Last Thursday’s retest of the recent market lows suggests either consolidation in the downtrend or a potential bottom of some sort. Considering the continuing high current levels of bearish sentiment and oversold technical readings, the odds seem high for a sideways or upwards bias, while a move to new lows in the near term would only stretch these indicators to further extremes.
Options Expiration Results
- Anglo American plc (AAUK) – The October 15-strike puts I sold against AAUK on 10/09/08 expired in-the-money (ITM) and I was put the stock for a net cost basis of about $13.70 per share.
- Microsoft (MSFT) – The October 26-strike calls I sold against my long position in MSFT on 07/16/08 expired out-of-the-money for a 4-1/2-month net return of about 8%.
- Philip Morris (PM) – The October 45-strike puts I sold against PM on 10/06/08 expired ITM and I was put the stock for a net cost basis of about $42.80 per share.
- Southern Copper (PCU) – The October 45-strike puts I sold against PCU on 10/08/08 expired ITM and I was put the stock for a net cost basis of about $14.50 per share.
New positions
Citigroup (C) – On Tuesday I sold some March 20-strike calls on C as the stock continued to rally along with other bank stocks following the government’s latest plans to help shore up the banking system:
I had tried selling higher-strike calls on C just days ago when the stock was trading at around 23 but just missed that opportunity, so I took advantage of the next available rally (and very high option premiums) to initiate a position. Given the company’s announced intention to further reduce its dividend when it was attempting to buy Wachovia, and uncertainities following the direct government involvement, I didn’t want to wait any longer without doing something to reduce my net cost in this position and perhaps prepare to exit it entirely early next year for far better opportunities.
Watchlists
No stocks of interest showed up on this week’s “upside strength” scans.
The following stocks showed up on this week’s “oversold” scans of beaten-down stocks of interest, suggesting that likely further near-term weakness may represent a buying opportunity: Allstate (ALL), Altria Group (MO), Automatic Data Processing (ADP), Bristol Myers Squibb (BMY), Exxon (XOM), Harley Davidson (HOG), Home Depot (HD), Johnson & Johnson (JNJ), Royal Philips Electronics (PHG), Valspar (VAL), Walgreen (WAG), Watsco (WSO), and Weingarten Realty Investors (WRI).
