Waiting for the other shoe(s)…
Despite a nice rally late last week, the weekly trend analysis remains awash in red, indicating that the intermediate-term trend for all the major indices remains down. Interestingly, the Dow Jones Industrials – which has up until recently been a consistent under performer – is currently outperforming the other averages on a relative basis. At the moment, however, that just means it’s down less than the rest of the market.
Given the market’s currently “oversold” condition, a further rally – perhaps up to 1200-1210 on the S&P500 – wouldn’t be a surprise. But as long as the weekly trend analysis remains negative, I would have to view any rally as a short-term bounce in the context of a longer-term down trend, which means this coming week should be interesting. With options expiration added to the mix, a lot could happen.
Last week I attempted to sell more puts on a variety of stocks on my watchlist, but only one of my limit orders triggered. On Monday I sold a few October 22.5 puts on General Motors (GM) as it sold off on news of Delphi’s bankruptcy filing. Between this news and with earnings due out this week, the stock could remain very volatile – and this is certainly reflected in its option premiums.
This adds to my short puts position in GM (I had sold some October 25 puts the previous week). Obviously I’m fairly comfortable (for now) with the idea of being put the stock, but it’s definitely not for the faint hearted.
An interesting case for owning the stock, from a long-term value perspective, can be seen at the Controlled Greed blog. On the other hand, this Morningstar article featuring picks and pans from the current “Dogs of the Dow” stocks shows GM as the only “Dog” with a negative three-year projected return (starting from a base price of 26.70). Right now, I’m only concerned with the next five days. 
In addition to the GM puts, I’m also still short the October 47.5 puts in Allstate (ALL) I sold last month. While the stock looks like it may revisit the 50 level sooner or later (and if a hurricane “Wilma” develops it could be sooner), it still seems unlikely that my puts will be trading in the money within the next five days, so I’m planning on letting them expire (hopefully worthless).
Meanwhile I’m continuing to watch for put-selling opportunities for next month’s expiration (I’m already short some November puts in Exxon (XOM)) as many of the stocks I’m following have moved closer to my short-term downside targets. I’m also (re)adding Pfizer (PFE) and Molson Coors Brewing (TAP) to my watchlist, and will be looking to sell puts on any declines to the 22-23 and 58-60 levels, respectively.
