Market view: Half full or half empty?
A weak performance for the U.S. indices last week has left the weekly trend picture looking mostly negative once again – a cautionary sign. In particular, the NASDAQ and Russell 2000 (see below) have been continuing to under perform and are looking vulnerable on the price charts:
It’s noteworthy that, unlike the DJIA and S&P 500, both of these indices remain technically “oversold” here, as neither has yet experienced enough of a rally to significantly relieve that condition. This failure to rally (so far at least) could be viewed as underlying weakness in the market that portends a sustained and extended decline ahead.
On the other – more optimistic – hand, a further decline here might be a buying opportunity as small-cap and tech stocks become increasingly oversold, possibly signaling a bottom within what may turn out to be a normal correction. I’m keeping both of these downside scenarios in mind as I continue to watch for put-selling opportunities.
New positions
Analog Devices (ADI) – On Friday I sold some September 25 puts on ADI as it fell by over 16% after the company reported “disappointing” earnings results and lowered its guidance:
Assuming ADI continues lower, it should find near-term support at the 22 – 25 level, although it’s anybody’s guess whether it’ll be above or below 25 at September’s options expiration. In any case, as always, I’m comfortable owning this stock at these levels if it’s put to me.
Watchlist
Once again, strength is showing up in consumer staples (like General Mills (GIS) and PepsiCo (PEP)), energy (like Exxon (XOM) and Encana (ECA)), and healthcare (like Baxter International (BAX), Triad Hospitals (TRI), and United Health Services (UHS)).
And again this week there are a lot of oversold candidates of interest (especially if they go lower from here). New (and returning) additions this week to my “oversold” watchlist include AFLAC (AFL), Alcoa (AA), American Home Mortgage (AHM), Burlington Northern (BNI), Deere & Co. (DE), Union Pacific (UNP), and Whole Foods Market (WFMI).
