The jobs numbers today certainly were in line with expectations but the news that unemployment levels dropped to 7.8% has everyone scratching their heads. I think it is important to keep things in perspective. It really does not matter how much manipulation or massaging of stats are done. It is better to stay focused on the market direction which for the moment continues to remain up. A number of analysts have called for a market correction of 15% this fall and others see no correction. I believe as I have indicated before that the 50 day moving average will be the first warning sign. Meanwhile all the Dow Theorists this morning were busy backtracking as the Transports are now up 4% marking the best recovery in 3 months and placing the transports ahead of the S&P. Seems like another Dow Theory sell call was wrong.
Market Direction Trend Still Intact
The most important thing to take away from the jobs numbers is that the trend remains intact. That trend has been sideways with the bias to up and that has meant decent Put Selling opportunities and stock trades on dips. With the VIX Index index heading lower the normal course of events has been for the market to begin to have trouble when the VIX Index index gets below 14, so keep an eye out for that sign to see if it repeats itself as it has done all year to date.
Stock and Option – HPQ Stock
Lots of emails on HPQ Stock and what do I think. Well first I think Hewlett-Packard Company stock is oversold absolutely but surprisingly the Technicals do not show much a bounce at this point despite the incredible 50% decline in value. There are serious issues being faced by Hewlett-Packard Company so I am not expecting a rally back to the old highs for some time. The dividend though is which is only .53 cents is now at 3.58% and I see not reason for it to be cut. Would I be selling puts? Well not naked puts, but I do think credit put spreads are not a bad strategy at this point in the decline. With the decline being so steep it should not have much further to fall. When there is a bounce I would be doing call credit spreads. Any strategy taking advantage of the up and down action now in HPQ stock is probably one of the better ways to play this company short-term. For longer-term investors probably selling leap puts options is not bad.
The January 2014 $10 put at .85 cents is yielding 8.5% and perhaps not a bad strike to consider, however make not mistake that HPQ Stock is in trouble and there are major issues facing Hewlett-Packard Company going forward.
Stock and Option – AVP Stock
Avon Products has also been in trouble for some time. Today with the announcement of new leadership, AVP Stock is seeing a very nice pop. Something definitely needed to happen at Avon Products to turn the company around. Again this is another corporation in serious trouble and changes in leadership can help but often there are fundamental problems with the marketplace that the company itself faces. Avon could be one such company. Looking at the APRIL 2013 options chart below for today taken at 1:30 PM, (calls to the right, puts to the left) if I had stock I would be waiting for the little rally to start to slow and then consider the April 2013 covered calls. The $18 is at a nice price today and if the rally can keep going for a few more trading sessions, the $19 may also hold some promise.
Short-term I don’t think AVP Stock is on the mend. It may drift around $17.50 on the high and $16.00 on the low until the next earnings come out. Anyone selling Covered Calls now could buy those calls back before the next earnings if they were worried that earnings will be better than expected. Personally I don’t think earnings in the next quarter will be impacted so I think the rally will last just a short time.
Stock and Option – FB Stock
Facebook Stock had managed to defy gravity for a while now. The news out of Zenga today though is not encouraging but the stock is still holding above $20.00. I think the question that stock holders need to ask themselves though is how long before the stock can regain the IPO price. For those holding Facebook Stock I would think some Covered calls may be in order. They could easily sell far enough out of the money to avoid assignment, particularly if they sold covered calls on days when the stock is up. The problem is Facebook Stock has not been up all that much making covered call selling not easy.
Stock and Option – IWM ETF
For those Fullyinformed Members who are doing the Trading For Pennies Strategy I have made permanent changes to the Bollinger Bands settings. This completes the study of the Bollinger bands. I am now moving on to analyzing the fast stochastic settings and then I will conclude with momentum. So far the trades are very good but the strategy needs to be consistently profitable in my books, for me to want to integrate it into my overall portfolio. For members you can read the latest on the Trading For Pennies Strategy through this link.
Stock and Option Intraday Comments Summation
That concludes my Intraday comments. The jobs numbers certainly upset a lot of analysts and probably rightly so. However I can only trade within the environment that the market direction provides me. I cannot make changes to jobs numbers or any other statistic in the “belief” that I am right and they are wrong. So I stay focused and stay with the trend. This weekend I will be continuing to put up new articles and some more strategies. Monday is a holiday in Canada so the Toronto Stock Exchange is closed., Monday is Columbus Day but the markets are open. I will be posting some material on Monday as well and continuing to refine the Trading For Pennies Strategy so I can then move on with other strategies. Enjoy your weekend.