Market sentiment = buy dips?
This week’s market trend picture remains almost completely negative with the exception of a few positive shorter-term trends. This seems to leave open the possibility of either an up or down move from these levels, with an intermediate-term bias toward further downside action.
Sentiment is still overall quite bearish, suggesting from a contrarian point of view that the market could well move higher – or that any downside action in the near term would likely represent a good buying (or put-selling) opportunity. However a protracted sideways movement over the coming days/weeks could dissipate these readings and set the stage for another leg down.
Options Expiration Results
- American International Group (AIG) – On Monday a limit order I’d placed before the opening to sell some February 45-strike puts on AIG was triggered as the stock dropped sharply after the company warned of greater-than-expected credit-related losses. The stock held all week at the 44-45 level and the puts ultimately expired out-of-the-money (OTM) for a quick one-week net return of about 1.2%.
- Bank of America (BAC) – The February 42.5-strike calls I sold on 1/29/08 against my long position in BAC (purchased 1/22/08) expired in-the-money (ITM) and my shares were called for a total seven-week net return of 10.7%.
- CBS Corp. (CBS) – The February 25-strike calls I sold on 01/29/08 against my long position in CBS (purchased 1/22/08) expired ITM and my shares were called for a total six-week net return of 4.7%.
- Countrywide Financial (CFC) – The February 6-strike puts I sold against CFC on 2/05/08 expired OTM for a 1-1/2-week net return of about 3.1%.
- Group 1 Automotive (GPI) – The February 25-strike calls I sold on 1/28/08 against my long position in GPI (purchased 1/22/08) expired ITM and my shares were called for a total seven-week net return of about 18%.
- Foot Locker (FL) – The February 10-strike puts I sold against FL on 01/09/08 expired OTM for a 5-1/2-week net return of about 4%.
- Microsoft (MSFT) – The February 30-strike puts I sold against MSFT on 2/01/08 expired ITM and I was put the stock for a net cost of about $29.50 per share.
- New York Community Bancorp (NYB) – The February 17.5-strike puts I sold against NYB on 2/04/08 expired slightly ITM and I was put the stock for a net cost of about $17.07 per share.
- Paychex (PAYX) – The February 32.5-strike calls I sold on 01/29/08 against my long position in PAYX (purchased 1/22/08) expired ITM and my shares were called for a total 6-1/2-week net return of about 0.9% (mainly from a dividend payment).
- Wachovia Corp. (WB) – The February 40-strike calls I sold on 01/25/08 against my long position in WB (purchased 1/22/08) expired OTM for a three-week net return of about 1.8% on the position.
- Wal-Mart Stores (WMT) – The February 47.5-strike puts I sold against WMT on 1/24/08 expired OTM for a 3-week net return of about 2.1%.
New positions
Allstate (ALL) – On Thursday I sold some March 42.5-strike puts on ALL on weakness:
The short- and intermediate-term trend of ALL is clearly down, and a test of support in the 42-43 area seems likely. Below that, the 39-40 level should offer strong support. Fundamentally the stock appears to be a reasonable value at these levels.
MetLife (MET) – On Monday I sold some March 50-strike puts on MET on weakness in the insurance sector:
MET currently appears to be in an intermediate-term uptrend or trading range, with support at around the 56 level and upside resistance at about 60-61. A break below 55-56 would change this picture; the 52-53 level would appear to offer strong support on a breakdown from here. I’d be happy to own this stock below 50 if it were put to me.
Wal-Mart Stores (WMT) – On Friday I sold some March 47.5-strike puts on WMT on weakness as the stock once again pulled back from the 50 resistance level (and as it became clear that my February short puts were expiring OTM):
WMT remains in an intermediate-term uptrend, although may be currently consolidating. A break below 47 would change this view. The 50-51 level continues to represent upside resistance. Fundamentally the stock appears to be a reasonable value at these levels.
Whole Foods Market (WFMI) – On Friday I sold some March 35-strike puts on WFMI as the stock sold-off sharply following an analyst downgrade:
WFMI is in a short-term uptrend but still appears to be in an intermediate-term downtrend. Near-term support is at the 35-36 level, which could easily be revisited if there’s a negative reaction to earnings next week. A break below that would suggest a move to next lower support at around 29-30. From a longer-term perspective, these levels would seem to offer a reasonable valuation level for this stock.
Watchlists
“Upside strength” candidates of interest this week include Applied Materials (AMAT), International Game Technology (IGT), Patterson-UTI Energy (PTEN), and St. Jude Medical (STJ).
Candidates of interest on the “oversold” scans this week include Baldor Electric (BEZ), Barnes Group (B), Cubic (CUB), Eaton Corp. (ETN), Gannett (GCI), Genworth Financial (GNW), Granite Construction (GVA), Paccar (PCAR), Paychex (PAYX), Telefonica (TEF), Unilever (UN), Vulcan Materials (VMC), and Wachovia Corp. (WB).
