In the background of yesterday’s rise in the market direction, the numbers show that the market is continuing to consolidate recent gains. This means that my selling puts on large cap stocks on dips in those stocks is still the strategy for me to continue. I posted a number of trades last night and again this morning as I try to get my stock and option positions up to date.
Market Direction Outlook Intraday – 5 Day Chart
To explain what is happening within the market direction at present let’s look at the 5 day 5 minute chart. After making a recent high on Tuesday, you can see that the market direction hit a wall of selling as momentum signaled extremely overbought. A day later on Wednesday the market direction fell back from that high but the intraday drop in momentum was met with a wave of buying. Investors remain convinced that the economic recovery is taking hold but not fast enough or strong enough to get the Fed scaling back Quantitative Easing. This for investors seems to signal the best of both worlds. Liquidity to keep the market afloat and the usual Bernanke “Put” on any severe decline in stocks and a grinding recovery which keeps stocks moving higher.
On Thursday the market pushed back and again this morning but if you look at momentum you can see how steady and flat it is. The market id consolidating recent gains. This could last another day although I won’t know until later today. My instincts tell me that we are moving higher on Monday, but my instincts have been wrong more times than right so I prefer the technical indicators instead.
A couple of stocks worth mentioning include Microsoft Stock which really caught analysts off guard. They were expecting Microsoft to have trouble even reaching estimates of 54 cents a share. Microsoft beat that handily and the stock is up over 6%. Remember though that there are still just two strong support levels in Microsoft Stock. The chart below shows the $32.50 support level from the past 6 months and the long-term support at $27.50. Right now at $36 there is no support at all. That means for Put Selling it is best to wait for Microsoft Stock to establish clear support before Put Selling. I see little wrong with the $33 put strike because support at $32.50 should give that strike some relief in the event of a pullback, but I hate selling puts on big up days. That means I am waiting before Put Selling further.
Not back in the news but certainly on a lot of investors’ minds, YUM Stock is hanging tough. The chart below shows what interests me and why I am still Put Selling this stock. I actually have puts at $62.50, $65 and $67.50. You can see two tests of support at $65 both of which were successful. The stock today is back up over $66. Meanwhile looking at accumulation, distribution, look at the buyers back picking up shares. A lot of investors are perceiving this downturn as an opportunity. Finally the Williams %R shows how strongly oversold YUM Stock is. Both of these technical indicators point to YUM Stock moving back up and holding support at $65. For my part, I think the naked puts I am holding are clear evidence as to where I stand on the stock.
Procter and Gamble Stock
Earnings today were up 7% but revenue was short with Procter and Gamble Stock (PG Stock). Still though investors pushed the stock way up in the past month as it was definitely oversold. Now though the stock is overbought. I added in the Ultimate Oscillator and the Slow Stochastic to show how strong the overbought signal is Today intraday we are seeing a sell signal from the Slow Stochastic. Meanwhile though I like to wait another day before considering covered calls or naked calls although there are a lot of indications tthat Procter and Gamble Stock (PG Stock) could move lower. Still though, days like today are often knee-jerk reactions from investors after the earnings and waiting a day is often a better choice just to be sure the trend is back lower.
Market Direction Outlook Into The Close
Into the close I believe the market continue to stay sideways but I think we will still see a green close. Investors remain committed to the market direction up at this point and the recent weakness is simply consolidation of the recent gains. I cam still Put Selling when opportunities present themselves. I am cautious on covered calls or naked calls as the direction up is dragging a lot of stocks into new 52 week highs. Remember that stocks can surprise to the downside, but they can also stun to the upside. What I perceive as overvalued is just my opinion based on revenue growth. Investors will always perceive stocks as undervalued when they are looking for some place to park their capital. If investors used my measuring stick for what is fair value, undervalued and overvalued the market direction would be far less erratic and certainly not this high. Good thing investors don’t use my metrics. I prefer a forthy market direction as it keeps volatility up and option premiums up. I will update market direction for Monday after the market closes tonight.
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