I think most investors had expected some weakness in the market direction today. The run up following Bernanke’s announcement was definitely overdone but it did break resistance cleanly at the 1700 level. With the market direction now pushed into virgin territory investors are looking for clues and catalysts to be able to move stocks higher. If those do not arrive soon, the market direction will naturally move lower providing some relief to those investors that are anxious at these lofty heights as well as concerned over the debt ceiling fiasco which is now front and centre.
There are always so many unknown events it makes one wonder why we invest in stocks. Well for the fun of investing and definitely for profits that are hard to find elsewhere.
Market Direction and Support / Resistance Review
Yesterday in the intraday comments I discussed the support and resistance scenario for stocks. I want to point to the 1700 level again. You can see how in the past the 1700 level was resistance. I have placed red arrows on the 3 month daily chart below that shows each time market direction moved to 1700 it was shoved back. In late July and early August the 1700 level was breached just for 3 days before on the 4th day market direction fell back and closed beneath it. Following that the S&P 500 tried for 6 days to break through and was unable to. It then commenced the most recent correction which we are now out of. The different with the latest rally above 1700 is that it was all Fed driven. Since then we are drifting back and I do believe as you can see by the red arrow that investors will retest 1700. So our watch is set for 1700 on the S&P. Once we reach it then it becomes a question of do investors have enough confidence to keep buying stocks.
Many stocks have been pushed back up in the most recent rally from the end of August. September has been a great month especially considering the Syrian Issue, Fed tapering hanging over the market and now the debt ceiling once again. The rise has been excellent but I do believe the S&P 500 will need to test, at the least, the 1700 level before deciding on a clear market direction.
Coca Cola Stock Put Selling
All the beverage Companies are moving lower over the past couple of days. Yesterday I sold puts on PepsiCo stock. Today is is Coca Cola Stock where I sold the $38. Coca Cola failed in the last rally to get back above $41 and couldn’t even get back above $40. I don’t think it is overpriced at $38 and I do believe it would be simple to roll down but a roll down probably would not bring in much credit if an investor who sold puts at $38 had to roll down to $37. Instead I would add more capital to the trade if I have to roll down. At $37 I would roll sideways as I think Coca Cola Stock is good value at $37. The $1.12 dividend at $37 is 3% which is decent for a beverage company.
Other Beverage Stocks
Anheuser-Busch Inbev ADR (BUD) is still way overvalued in my opinion and was a better buy at $84 to $85 back in June and July of this year. It has had a very nice move higher but for Put Selling I would not be interested. Covered calls though look appropriate as the stock just yesterday made a new 52 week high of $103.85.
Dr Pepper Snapple (DPS) I don’t follow or trade but it has a very nice downtrend going on. The problem is the options trade in $5.00 increments and I wouldn’t want to be Put Selling until the stock fell to the Lower Bollinger Band. If the stock can break $44 there might be some value in the $40 puts for selling but it is somewhat doubtful.
Molson Coors Brewing Stock (TAP) has probably the best pattern aside from PepsiCo Stock for Put Selling and covered calls or naked calls. It has steady daily volume and options trade in .50 cents increments for the closest expiry and $2.50 increments when you move beyond the weeklies. The problem is premiums are poor. The way to trade TAP Stock is with the Bollinger Bands. Right now it is at the high of the Bollinger Bands and looks ready to fall. Anyone who bought shares could consider selling out here. Then buy puts for the move lower. Then at the Lower Bollinger Band as soon as the stock hits there wait for it to turn sideways and sell puts and buy stock or call options for the move back up. When buying options 3 months out look best based on the chart below to give the options enough time to have the trade turn in the right direction. The dividend of .32 cents a quarter which certainly is fine for this stock.
Market Direction Outlook Intraday for Sept 20 2013
Options Expiration
I have a lot of put options expiring today that I sold over the past weeks. I will have a lot of capital freed up after today and I will be back Put Selling next week. I will have up a longer than usual list of trade ideas in the members section this weekend. I will try to have it up sometime Saturday so members have time to review them and look at their own charts and portfolios.
Live Long and Prosper
It has been a great year so far and my US Portfolio is nearing 40% which is a terrific return. I have had a lot of investors emailing me with returns over 50% this year and I tip my hat to all of you. Many are doing incredibly well with the Trading For Pennies Strategy and one investor wrote me this short email which I want to use to plug my PDF on the 4 Investment Strategies. (Words in brackets I have added to his email)
“Teddi;
Last fall I bought your 4 Investment Strategies (PDF) and spent three months paper trading them. The Shark Option (Trading Strategy) is amazing. I have doubled my money that I used for Apple Stock. I bought a lot of Apple Stock last year and just got hammered in the downturn this year. I’ll admit it, I sold out at $400.00 even though you told me to hang on in your email earlier this year. I took one hell of a bath but I could care less thanks to your shark strategy. I have used the shark strategy since January and made back all my losses and lots more. I will never own Apple Stock again. Your strategy saved my derriere! Now I am busy using the Cry Baby (Stock Trading Strategy) to save another stupid trade I did on CLF Stock. What a disaster, but your (Cry) Baby Strategy is saving me again. I am a member for life! Please keep on writing and as the trekkies say “live long and prosper” but definitely live longer. Adam”
I appreciate the praise and sentiment from Adam and I am glad investors are doing well. Remember, turn down the noise of the media and stop the doom and gloom about the market. Instead look for opportunities for put selling. As well consider setting aside a specific amount for trading with the market direction. Profiting from the market direction is an excellent means to keep growing your portfolio no matter what direction the market is heading and is a great combination with put selling.
For the rest of today I am not expecting much out of the market direction. I won’t be surprised though to see the market selling to slow as we get near the close of the day.
Market Direction Internal Links
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Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)