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MARKET DIRECTION CALLS
August 2 2011 - Selling Intensifies
August 1 2011 - Bear Returns
July 28 2011 - Before The Open
July 27 2011 - Down But Are We Out?
July 20 2011 - Stock Market Volatility
July 18 2011 - Investors' Nervousness
July 15 2011 - Earnings VS Bleak Data
July 14 2011 - Below 1310
July 13 2011 - Ugly Looking Chart
July 12 2011 - Razor's Edge
July 8 2011 - Nasdaq Leads The Way
July 5 2011 - Expected Weakness
July 1 2011 - Overbought
Jun 28 2011 - July Rally?
Jun 27 2011 - Mixed Signals 
Jun 21 2011 - Bottom Or Bounce?
Jun 16 2011 - Raising Cash
Jun 15 2011 - More Downside To Come?
Jun 14 2011 - Bounce or Bottom?
Jun 12 2011 - Batten Down The Hatches
Jun 6 2011 - Bounce Sometime Soon?
Jun 2 2011 - Sell Signals and Warnings Everywhere
Jun 1 2011 - How Bad Could The Selling Get
Jun 1 2011 - Tread Carefully - Markets Remains Overvalued
May 31 2011 - Success - 100 Day Moving Average Tested
May 17 2011 - Be Careful Out There
Apri 18 2011 - Two Bears Compared
Apr 13 2011 - Why I Bought Puts Today
Apr 4 2011 - Breaking The February Highs
Mar 16 2011 - The Art Of Being Wrong
Mar 15 2011 - Market Remains Resilient
Mar 11 2011 - Trend Is Down
Feb 25 2011 - Trend Turning Bearish
Feb 11 2011 - Still Up - But Watch For June
Jan 3 2011 - Trend Remains Positive
 

MARKET DIRECTION CALL S&P 500

June 12 2011 - Batten Down The Hatches?

This week could see the March low of 1249 violated. If that happens then the 200 day will have been broken and the bulls will have a tough time defending their turf. I bought SPY puts on Thursday but I have not yet sold them. I plan on closing some puts this week and watching carefully for any further downside. The trend remains down until the market can create higher highs and higher lows. This has not been the case since May. For myself, it is time to not only be cautious but to consider closing profitable positions and waiting for the market to prove it will not fall further.

S&P500 for June 6 2011 - Bounce sometime soon?

 

FINANCIAL STOCKS

The bear market in financial stocks which is now 6 months old, continued last week unabated. Many analysts feel that financials in the stock market (not Canadian) are very undervalued and will recover. What I do not understand is why would anyone not wait for these bank stocks to recover before committing capital. For those investors who believe US Banks are undervalued, why not sell call options instead? That way if the stock does recover, they can purchase the shares and turn the naked call option into a covered call. On the other hand if the stock languishes or stays sideways, at least the investor is gaining income while waiting, which in the end, will reduce their cost basis in the stock. Many investors feel that naked calls are very risky. After doing naked calls for years I have found them exactly the same as naked puts. In a down market, unless you want the stock assigned, naked puts are not the option to sell. Spreads can be a decent choice but I prefer call spreads over bear spreads. My personal choice however remains with selling naked calls and staying with SPY puts for hedging.

I believe the clue to a sustained rally in the markets will be when financials end their bear market and begin recovering. How long can that take? I have not a clue, but if some of the articles I have read recently on Barron's online are any indication, it could be a while.

Below is the chart of the period from 1972 until 1979 when I first started investing. All in all, the market went nowhere. Anyone who invested in the index (which wasn't actually available since ETFs weren't around at that time) saw an entire gain of 9.73%. What anemic growth, but the 1970's was a very scary time to be invested. The market collapse in 1973 to 1975 wiped out a lot of investors. In 1972 I had just started with selling options and for most of the decade I sold naked calls and to a lesser extent naked puts on a handful of stocks. The majority of stocks did not have options available, so I had just a small number of stocks available.

S&P500 1972 to 1979 chart

SUMMARY

I put up the chart of the 1970's to show that we could easily enter into a period of limited growth which could see the markets tend sideways for an extended period. It is definitely not out of the realm of possibilities. Meanwhile though, should Greece default on their debt, definitely the markets will enter a period of instability and I would think quite the pullback if not a new bear market. For me I plan to keep a lot of my capital out of the market, hold some SPY puts and sell far out of the money naked puts and naked calls, but only on stocks I would hold through a financial crisis, which could be worse than the credit crisis of 2008. Right now that does not include any US Financials.

 

Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed or presented are financial advice, trading advice or recommendations. Fullyinformed.com is a private website. Everything presented and discussed are the author's ideas and opinions only.
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