The market direction outlook for today was for some possible weakness but that weakness is looked upon as an opportunity. That means I am busy selling puts and doing a few trades this morning. Investors are nervous once again over the Fed and the tapering question of how much to remove and how soon they will begin.
The question of whether the market can stand on earnings alone is tough to call and that’s got investors worried. They want the market to go higher but they don’t want to be the last ones “dancing at the party”, so to speak. I wrote an article about this a long time ago called Dance Near The Exits and that’s what’s been happening since the beginning of the year.
As Goes January
Just remember that when analysts advise that the old saying of “as goes January, so goes the year”, is not really true, don’t listen. I started investing just before the oil embargo of 1973. I lost half of my capital in the crash that followed. I have kept track of January’s ever since and my stats show that a poor January is about 95% accurate for a poor year. A down January since I started investing has ended with a down year in 92% of the time. These are strong percentages. For that reason I believe taking smaller positions and having the rescue strategy in place at the start of the trade is important.
Steps To Successful Put Selling in 2014
In the present market the steps to successful put selling can be summed up this way:
1) Look at the support levels in the stock. Are they solid?
2) If the return is huge, what are the risks.
3) Is there a safer trade elsewhere that still meets the goal of 1% return for the month.
4) What rescue or repair strategy would you apply in the event the trade does not work out.
5) Do you want to own the stock if assigned. If not but you still want to do the trade sell out of the money puts only.
6) Would a put credit spread provide better safety and still meet the goal of 1% for the month?
7) Once all the above have been considered, then place the trade and not before.
Capital Preservation First – Profit Second
Remember in a market like present, capital preservation is the priority. The profit earned is secondary to the risk to capital. At the end of a tumultuous year you want to look back on your trades and see how much capital was never at risk and then how much your return was. I aim for 12% each and every year. Any return above that I consider a terrific gain, but preserving my capital is the most important aspect of my investing.
S&P Intraday Market Direction Action
The day’s market direction action so far has been weak but the only thing really worth focusing on is that the 1840 level is still the low for the day. If the S&P holds above the 1840 level it will move higher.
Market Direction Intraday Into The Close
I have been busy selling puts again this morning. Unless the S&P falls today below the 1840 level, then this is just a day of weakness. The direction remains up. That is what I remain focused on and at present, around 1:00 PM that’s the only valuation worth being concerned about. The weakness from today is still investor jitters but the rate of change shows accumulation is still happening and that tells me the market wants to move up. 1840 then is the line in the sand for today.
Market Direction Internal Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)