Market downtrend intact, but some positive signs
Last week the market indices fell to, and then bounced off of, near-term support levels. Some positive signs are an improving sentiment picture (i.e, increasing bearishness among market participants) and signs of buying in (some) financials, which are once again at intermediate-term oversold levels, suggesting that a bottom of some sort may not be too far off.
Meanwhile, the market trend picture remains mostly negative, suggesting that more downside action is likely. A move above near-term resistance at about 1375-1380 on the S&P 500 and 12,400-12,500 on the DJIA would likely change the intermediate-term view to something more positive.
New positions
No new positions were added this week. However, I did close out my position in Wachovia (WB) for a loss. The longer-term fundamental and technical pictures here have both continued to deteriorate and there are currently far better opportunities in (and outside) the financial sector in which to better deploy the capital.
Taxes also played a role in this decision. Last year, for various reasons, I failed to diligently “weed out” such underperforming assets in my account and ended up paying higher taxes as a result of not having any significant capital losses to help offset my gains. So not only did I pay out more in taxes, I still had money tied up in some positions (e.g., International Paper (IP) and Amgen (AMGN)) that have either continued to perform poorly, are not generating any income, and/or whose long-term prospects have deteriorated. I’m going to be more aggressive about addressing such positions going forward.
Also, my passive dividend income last year was less than the previous year so I’m making more of a concerted effort to focus on increasing that substantially. Ultimately – looking out with a ~10+ year horizon – I’m looking to assemble a portfolio of high-yielding and dividend-growth stocks that will be able to generate a consistent retirement-level income from a combination of dividends/distributions and option-writing strategies. The news that Wachovia may be cutting its dividend again was another factor in my decision to exit my position in WB.
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include ABM Industries (ABM), Enbridge Energy Partners (EEP), Nicor (GAS), NSTAR (NST), and Staples (SPLS).
“Oversold” candidates of interest this week include Bank of America (BAC)*, Black & Decker (BDK), Clorox (CLX), Consolidated Edison (ED), ING Groep (ING), General Electric (GE)*, Ingersoll-Rand (IR), Koninklijke Philips Electronics (PHG), Universal Corp. (UVV), Wells Fargo (WFC), and Whirlpool Corp. (WHR).
* I currently own and/or have an options position on this stock.
