Market Direction Intraday is following the market direction technical indicators from the close yesterday, almost to the letter. We saw some strength in the morning and then weakness as the market presents us with a choppy picture. The weakness is to be expected. Investors hate uncertainty. This morning then was a lot of bargain hunters and I was in there with them. I sold puts on BNS Stock (TSX) and bought shares and sold Covered Calls. I sold puts on Caterpillar Stock (CAT), Seagate Stock (STX), Kimberly-Clark Stock (KMB) and I have offers in on others as well.
In my most recent strategy discussions I indicated that I was moving from a cautious to a more fully invested stance. This recent weakness is opening up many opportunities including an excellent Trading For Pennies trade this morning.
The Cyprus one-off tax on bank deposits I believe undermines investor confidence in the euro zone and while I don’t see it throwing the region into a financial crisis again, it is a very poor attempt to make savers responsible for the losses of politicians and banks and I don’t believe this is any kind of solution. If Cyprus needs to raise capital then start by bringing income tax rates in line and just like Greece, get people to actually pay those interest rates. This is an island nation of just under 1 million people. The Government should be able to better manage their budgetary needs. The continual election of governments world-wide based on whom will lower taxes the most is showing the folly of thinking you can provide an infrastructure and services without a proper income tax structure in place. .
Market Direction Action and Spy Put Options Bought
The clue to buying Spy Put Options is using the market direction technical indicators from the previous day to determine the possible use of the Spy Put Options. Today is a classic case. The market direction opened with a bounce higher but by 11:00 AM the S&P 500 has put in a new lower low. You can see this in the market direction chart below. The market direction technical indicators last night had indicated market weakness. Not a big sell-off by an stretch but certainly market weakness. This should be expected just based on the Cyprus issue which breeds investor uncertainty. Add to that the Fed 2 day meeting and Bernanke speaking on Wednesday and I figured the market direction technical indicates yesterday would be correct.
I waited for the second bounce and bought my Spy Put Options for what I believed would be a move lower. So far the move lower has been correct. I am not looking for anything major here. However I do believe there will be some further weakness and then probably an attempt to rally back in the afternoon. If the rally cannot get back above 1553, then the rally will fail and the S&P 500 will close lower again today.
Spy Put Options
I will not be holding my Spy Put Options longer than today. I will be selling them sometimes this afternoon.
Market Direction Intraday Summary
There is not a lot more to say today. The trend remains weak and choppy. I was surprised to get a call from Doug Harris who stepped in and bought UDOW ETF shares this morning. I thought this a poor choice based on the market direction remaining poor at best right now. I understand he has now been stopped out and taken a small loss. The value of using a stop cannot be under-estimated. I though believe strongly in the need to look at the market direction and consider Put Selling as a means to benefit from market weakness and still protect against any serious pullback.
Right now I see nothing that concerns me. The Fed Chairman tomorrow I believe will announce the continuation of his easing policies until unemployment is lower and GDP is picking up. Such an announcement can only continue to be good for stocks and the market direction up. My outlook then is for more choppiness and I have a number of offers in on stocks on out of the money puts and just as I found this morning with Kimberly-Clark Stock (KMB) sometimes the market direction down is just enough to get the put value I want on far out of the money put strikes. That’s the great thing about investing through put selling.
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