The uptrend that wouldn’t die
The intermediate-term market uptrend that began last October remains intact. That’s the conclusion from the latest weekly trend analysis, which – thanks to last week’s rally – is once again displaying an almost unanimous “green” positive reading across the trend spectrums for each of the major stock indices.
That said, it should be noted that many smaller-cap stocks – as reflected in the Russell 2000 index – are getting rather extended on the upside, and it’s prudent to wonder how much further they may go before seeing a more significant correction. On the other hand, larger-cap stocks – like those reflected in the DJIA, NASDAQ, and S&P500 – still have lots of room to move up if, of course, the market wishes to do so.
Options expiration results
I went into last week’s options expiration short the following February options: 62 1/2-strike covered calls against my long position in Exxon (XOM), 17 1/2-strike puts on General Motors (GM), 22 1/2-strike puts on Pfizer (PFE), 45-strike puts on Citigroup (C), 20-strike puts on Bristol-Myers Squibb (BMY), 25-strike covered calls against my long position in Lear (LEA), 70-strike puts on Unilever (UN), 25-strike puts on Tyco (TYC), 55-strike puts on Eli Lilly (LLY), 75-strike puts on Southern Copper Corp. (PCU), and 70-strike puts on Deere & Co. (DE).
Somewhat to my surprise (but I’m not complaining!), all of the options expired out of the money. Net five-week-or-less returns were 1.3% (XOM), 4.3% (GM), 1.5% (PFE), 1.6% (C), 2.4% (BMY), 7.1% (LEA), 1.1% (UN), 2.3% (TYC), 1.7% (LLY), 0.8% (PCU), and 0.8% (DE).*
Watchlist
Stocks that showed up this week on my “upside strength” scans that I’ll be watching include Abbott Laboratories (ABT), Avery Dennison (AVY), Carmax (KMX), Costco (COST), Disney (DIS), Electronic Data Systems (EDS), Estee Lauder (EL), Home Depot (HD), Honeywell (HON), Manulife Financial (MFC), Micron Technology (MU), Mylan Laboratories (MYL), United Parcel Service (UPS), U.S. Bancorp (USB), and Universal Health Services (UHS). New “beaten down” stocks of interest this week include J.M. Smucker (SJM), Safeco (SAFC), Schering Plough (SGP), and UST (UST).
* As always, the return on these “cash secured” put sales was based on the premium received from the sale of the options (minus commissions) against the unmargined capital set aside to pay for the possible assignment of the stock.
