Saturday’s are great days to get a chance to brush up on some past article and review some strategies that may have been missed. For the third week in a row the NASDAQ moved higher, closing at a new all-time high of 6100.76 and within a couple of points of the intraday high set on May 2 of 6102.72. The S&P on Friday also closed higher for the third straight week. A new all-time closing high of 2399.29 left the index within a point and a half from the intraday high of 2400.98. With indexes this high and many companies already having reported their earnings, many analysts believe the markets cannot push much higher in this quarter. Indeed a lot of analysts believe stocks may pullback into the summer months which they have so often done in the past.
With that in mind, Saturday evening would be a good chance to review some strategy articles that many of us may have forgotten as we prepare to enter the spring and summer months. These are often referred to as the worst six months of the year for stocks, a rather interesting historical trend that can trace it roots back to the 1950’s with startling accuracy.
May Is Often A Peak
Historically, the S&P has often peaked in May, reaching its highest level at the end of the best six months of the year and then spends the summer pulling back. But not all stocks pull back in the spring to summer months which means there are still lots of stocks to continue to trade during the weakest 6 months of the year to keep income flowing in.
General Dynamics Stocks
One sector that often holds up well during the spring through summer period is the defense sector which includes General Dynamics stock. (GD) I love trading in this stock and it has been in my portfolio for years. As you can see in the one year chart below, General Dynamics Stock (GD) is in a long-term uptrend.
In May 2016 the stock was trading around $144 and by the end of August it was at $152. There was a dip in the stock in late June which saw General Dynamics Stock (GD) fall to $132.68. but it was a trading opportunity, not a moment to panic. It was also when I purchase shares which I am still holding with covered calls set for $200 for June expiry.
In May 2015 GD stock started at $137 and by the end of August it was at $142.
In May 2014 it started off around $110 and by the end of August it was at $123.
General Dynamics Stock May 2016
In May 2013 it started the month at $75 and by the end of August it as trading around $84
In May 2012 it started the month around $68 and ended August at around $65 for a small loss. In short, it is a stock to consider for the spring to summer period, especially if we get the pullback many analysts are predicting.
General Dynamics Stock (GD) is nearing $200 which as investors might recall from trades posted in June 2016, was my exit price valuation where I intended to sell out of my shares from the pullback of June 2016. For FullyInformed Members, I will be posting an article ton Sunda on General Dynamics Stock and a few trade ideas.
Other Ideas For May
There are some other sectors for May worth considering. I will be posting these shortly, along with trade ideas for members.
Saturday Reading List
With markets sitting at all-time highs and many stocks considered overvalued, here are a few articles from the archives that may be worth a read over the weekend.
With Summer coming many investors take holidays, which is one of the reasons the markets tend to be slower. Here’s an article that looks at generating income through covered calls while on holidays.
U
sing Covered Calls To Generate Income While On Holidays
sing Covered Calls To Generate Income While On HolidaysWe all like to keep income flowing into our portfolios. Holidays though can be tricky and the longer the holiday the more problematic it can be to keep generating income. An investor emailed wondering about using covered calls to generate income while on a 2 month holiday. He concern is lack of trading access while on holiday. However holidays are meant for relaxation and should not need an investor to be checking his stocks or the market while on holiday. I have seen many investors who travel but are still chained to their smartphone or their hotel room or lobby for wireless access to keep checking trades. I have been on holidays where friends have made sure that all the stops along the way are at locations where there is wifi available so they can check trades throughout the day. This is not really a holiday.
This strategy article for members is 1700 words in length and looks at 3 different scenarios for investors interested in covered calls to generate some income while on holiday.
Dance Near The Exit
Here is an interesting article from April 2011. It is great fun to read how in April 2011, analysts were convinced the market, which was trying to push higher after the collapse in 2009, was on the verge of hyperinflation or stagflation and how every investor should be getting out of stocks and the market. In May 2010 investors had been stunned by the one day “flash crash” which in the morning when the market tanked, analysts were filling the airwaves with stories of how they had predicted this collapse back in May 2009. The best was an interview with Dr. Doom himself, Marc Faber of the newsletter, Gloom, Boom, Doom, who told analysts that the “flash crash” was just the start of the collapse of markets that would extend worldwide and predicted that this was the “second shoe” falling, from the 2009 collapse. As we all know now, the “flash crash” event was not fundamental in nature and was indeed an exceptional opportunity for investors.
This article is timely as I wrote about staying invested but keeping an eye on the exit window while turning down the noise from the media. Somehow, this article seems rather fitting this weekend, with both the S&P and NASDAQ closing at new all-time highs. This article is open to all investors.
The Cautious Bull
Investors who have been members for a long time will remember this article from 2011. At the start of 2011, I indicated I would be staying bullish on stocks but using the Cautious Bull Strategy.
In that article I indicated that I thought the easiest money to be made from the 2008 to 2009 market collapse was ending in 2011. I was certainly wrong looking back now, but hindsight is never a way to invest. Instead I turned to the Cautious Bull strategy which I developed in the late 1970’s following the devastating bear market of the mid 1970’s. This strategy served me well in 1987 , 1998, in 2000 to 2003 and in 2008 to 2009.
I thought in 2011 that the strategy should be used again. I didn’t want to get out of the market, but I thought there were plenty of signs that the market would pullback. The Cautious Bull strategy allowed me to still invest, grow my portfolio but also protect my positions from a potential pullback.
We did get a pullback in July 2011 when the S&P fell from around 1352 in Mid July to a low of 1101 on August 9. This was a drop of 18%, rather deep for a bull market. The drop was followed by a rally and then in October a further drop down to 1097 which was the low for 2011 and the end of the correction. The Cautious Bull strategy served me well throughout the summer pullback, so who knows, with stocks as high as they are, it only needs a catalyst to send stocks lower. Perhaps the Cautious Bull strategy may make a comeback this summer? A rather timely article considering where we sit today in the markets.
This article is open to all investors.
Microsoft Stock Is Better Than Gold
Another article from the archives that is worth a read is the one on how I invested in Microsoft Stock through a variety of strategies and earned an average of 33% each year for a period of 8 years for a total return of 925% by the end of the 8 year period. What is interesting is the price of gold back in 2011 and where it sits today. Factor in inflation and gold has been a terrible performer for years now.
In this article I explain how the strategies used in Microsoft Stock to return 33% annualized each year, making it a far better investment than gold. None of the figures in this article took into account inflation. This was a simple calculation.
I included this article to show that we don’t have to “run to the hills” with stocks at all-time highs, but instead need to focus on what strategy to be using now, to keep bringing in income while at the same time work toward protecting the capital in use. This article is open to all investors.
Selling Covered Calls For Anxious Investors
The final article to mention and another timely article, is this one from May 2013. During spring through summer, many investors turn to covered calls to try to generate extra income while stocks tend to be weak. It makes a lot of sense when you think about it. If stocks are weak during the spring to summer period, why not earn some extra income on stock holdings and then close all covered call trades by the end of summer, when stocks are expected to pick up and rally further. The strategy definitely seems sound and when investors consider that many stocks are held in IRA’s or other retirement vehicles and we would rather not sell out during the spring through summer period, selling covered calls seems to make even more sense. So why don’t more investors do this? Often it’s because we are worried we will lose our stock through exercise if the stock should rise and put the covered calls in the money. For others it is because they do not know how to time selling covered calls and equally important, when to buy them back and close these covered calls trade.
This strategy article for members looks at a method of selling covered calls with the focus on avoiding exercise. The stock used for the example is Microsoft stock and it is kind of fun to review the article at a time when the stock was trading for around $30 and yet realize that this strategy works, no matter what the stock or where it is trading.
This strategy article for members is 1400 words in length.
Enjoy the rest of your Saturday. I will be posting new content on Sunday.
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