Uptrend intact, but watching $USD, CRB, T-Notes
Another week and yet another positive weekly trend picture for the major stock market indices. While stocks are at some point going to have to take a breather, they have yet to actually show any significant weakness in their ongoing intermediate-term uptrend.
One potentially negative development however is the somewhat improving trend picture for the Commodity Research Bureau Index, the U.S. Dollar Index, and the 10-YR T-Note Yield, all of which have recently shown a negative correlation to stocks. If this improvement continues (it’s only a short-term positive right now) it could certainly imply some corresponding weakness in stocks.
Options Expiration Results
- Amgen (AMGN) – The December 67.5 puts I sold against AMGN on 12/1/06 expired out of the money (OTM) for a 2-week net return of 0.7%.*
- Avery Dennison (AVY) – The December 65 puts I sold against AVY on 11/13/06 expired OTM for a 5-week net return of about 1.7%.*
- Dow Chemical (DOW) – The December 40 puts I sold against DOW on 11/21/06 expired OTM for a 4-week net return of about 1.5%.*
- DuPont (DD) – The December 67.5 calls I sold on 11/9/06 against my long position in DD (purchased 5/23/05) expired in the money (ITM) and my shares were called, for a 19-month total net return (including covered call sales and dividend payments) of about 9%.
- Pfizer (PFE) – The December 25 puts I sold against PFE on 11/9/06 expired OTM for a 5-week net return of about 1.7%.*
New positions
Peabody Energy (BTU) – Last Thursday I sold some January 40 puts on BTU as it continued to sell off from its recent highs as warm winter weather, excess coal inventories at electric utilities, and other factors weighed on the stock:
Technically, despite its recent 10% sell off, BTU remains in an intermediate-term uptrend after rallying off of its September lows at the 34-35 support level. Near-term support levels are 42-43, then 40, and then about 37-38. However, the stock probably needs to hold at 40 or above for the intermediate-term uptrend to remain intact.
Progress Energy (PGN) – Last Thursday I sold some January 50 calls against my long position in PGN (purchased 4/21/06) as it continued to rally strongly along with the rest of the utility sector:
Although exhibiting no signs of weakness yet, PGN is approaching the 50 level, which has served as resistance in the past, suggesting an increased possibility of a near-term pause in the uptrend. Otherwise the stock appears to be on track to at least revisit its all-time highs at ~52.
Watchlists
Once again there are plenty of stocks to choose from to add to this week’s “upside strength” list. Some new ones that caught my eye include ACE Ltd. (ACE), Allstate (ALL), Altria Group (MO), American Express (AXP), CBS Corp. (CBS), Citigroup (C), Cemex (CX), Comerica (CMA), Consolidated Edison (ED), General Electric (GE), Kroger (KR), Manulife Financial (MFC), Molson Coors (TAP), Paccar (PCAR), Teekay Shipping (TK), and Service Master (SVM).
The only new additions to the “oversold” list this week include Ann Taylor Stores (ANN) and Archer Daniels Midland (ADM).
* 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.
