Weekend Update – March 31, 2013

It’s said that George Eastman, founder of Eastman Kodak (EKDKQ), was quite methodical as he approached the end of his life and was prepared to put his escape plan into action.

“My work here is done” may be a very logical way to approach any kind of transition, although it doesn’t have to be taken to the extreme that Eastman felt was appropriate under his circumstances. Be prepared, but don’t be crazy.

I’ve been transitioning a portfolio for almost a month in anticipation of the market taking a break and perhaps giving back some of its gains; maybe even a lot of its gains.

Doing so has made me much less fun to be around, but circumstances do change and being prepared for plausible scenarios means having exit strategies and surviving to see them do as planned until it’s time to exit the exit strategy. Once my work is done I can’t wait to get back to work.

I for one was glad to see the first quarter of 2013 come to an end. Fortunately, as a covered option seller, my remaining life span may not be sufficient to see another opening yearly quarter such as this past one, as the last such period was in 1987.

You may or may not remember how that year ended, but let’s just say that a single day 500 point drop back then was a lot more meaningful than it would be today.

I wasn’t prepared back then, in fact, that was the last time I used a margin account. I may end up being wrong this time around, but in watching markets for a number of years, both as a casual observer and as an active participant it’s reasonably clear that the good times don’t just keep rolling.

Selling covered calls is a great strategy when applied methodically, but it does meet its match in markets that just do nothing other than going higher. Hopefully April will usher in some greater variety in outcomes, as the past few weeks, despite having established records in both the Dow Jones and S&P 500 have been showing some signs of tentative behavior.

Part of being a less fun person has meant initiating fewer new positions each week. The first step to creating an environment that wouldn’t entice me to spend money on new positions was to cut off the funding just like you might with any addict. Luckily, most stock traders won’t resort to petty crime and pawning the belongings of loved ones to feed the habit, although that margin account can be very appealing and the answer to an easy fix.

I cut off my flow of funds by moving from weekly to extended weekly or monthly options. Longer contracts means less weekly contracts available to be assigned and less opportunity for new weekly cash to be available to “feed the beast.”.

Unfortunately, I also curtailed my cash flow by some unseemly timing in the purchase of new positions this past quarter, such as Petrobras (PBR) and Cliffs Natural Resources (CLF) that are sitting awaiting opportunities to have call contracts written against them.

The next part of the transition was focusing on reliable dividend paying stocks. The kind your grandfather would feel comfortable owning. Last week, all new positions went ex-dividend last week or this coming week. They’re not very exciting to own, but dividends, especially when their ensuing share price reduction is partially offset by option premiums are especially welcome.

Keeping more cash in reserve, moving away from “Momentum” positions, longer contracts and seeking near term dividends is the exit strategy and my transition is nearly complete.

Now comes the waiting and the period of self-doubt, which includes wondering when it’s time to abandon a thesis. In the meantime, increasing cash reserves doesn’t mean a total prohibition against finding potential new opportunities. After all, being prepared doesn’t have to take you to extremes. Once you’ve reached a crazy state of preparedness it’s hard to turn around to see the light.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend or Momentum categories, with no selections in the “PEE” category, as earnings season begins anew on April 8, 2013 (see details). Additionally, as in previous weeks there is a greater emphasis on stocks that offer monthly contracts only, eschewing the usual preference for the relatively higher ROI of weekly options for the guarantee of premiums for a longer period in order to ride out any turbulence.

Some of this week’s selections are stocks that I already own but may consider adding to existing positions. One such stock is Deere (DE) which left me somewhat exasperated this past Thursday, the final day of a holiday shortened trading week.

At almost precisely noon shares of Deere dropped by about $1.40 in about 8 minutes, taking it from the realm of stocks poised for assignment. The plunge happened while the market was stable and most other heavy machinery and equipment makers were actually going higher. There was no news to account for the sudden and sustained drop. Neither in real time nor hours after.

Caterpillar (CAT) is one of the stocks that has an ignominious reputation during this record setting quarter. It was among the worst performers of the quarter and was routinely tagged as a laggard on those days that the broad market performed well. I recently purchased shares having waited all quarter for them to reach the price point that was very kind to me in 2012. It accompanied Deere for a small portion of the former’s inexplicable retreat but recovered sufficiently to avoid being tagged yet again.

Bristol Myers Squibb (BMY) and Medtronic (MDT) fit into two ongoing themes. Looking for near term dividend paying shares and belonging to the broadly defined healthcare sector. While healthcare has been the leading sector for the trailing year, I think there are still short term opportunities, even with a specter of a declining market. While both Bristol Myers and Medtronic have had significant advances lately, the combination of dividend and premium continue to make it appealing.

MetLife (MET), also a recent holding, fits into my broad definition of “healthcare” if you stretch that definition to an extreme. Part of my positive outlook for its shares is related to what I believe will be growth in its home insurance business. Of course, I rarely think in terms of fundamentals and certainly don’t have a long term perspective on its shares, but it is well positioned to maintain price stability even in a stock market of reduced stability.

Wells Fargo (WFC) and JP Morgan (JPM) are two very different banks. JP Morgan goes ex-dividend this week and has been beleaguered with domestic attacks from elected officials and international attacks as Cyprus may or may not add risk to global banks, such as JP Morgan.

On the other hand, Wells Fargo is as pure of a domestic play as you can find at a size that still makes it “too big to fail.” With news of improving real estate sales all over the country the Wells Fargo money machine is poised to re-create the glory days that so abruptly ended 5 years ago.

I’ve been looking for an excuse to purchase Lowes (LOW) for the past few weeks and have watched its price show some mild erosion during that time

Dow Chemical (DOW) has been one of my favorite stocks for a long time. I purchased additional shares last week to capture its dividend and after looking at its performance over the past 10 months feel guilty thinking that it’s a “boring” stock.

In fact, it’s been absolutely the poster child for what makes a covered call strategy a successful one. While its stock price has virtually remained unchanged since May 2012, the active cycle of buying shares, selling calls, assignment, buy shares, etc.. has resulted in a nearly 40% ROI.

Finally, Western Refining (WNR) is a company whose shares I briefly owned recently at a much lower price. It was one that got away during the uni-directional market of the first quarter. Its price has come down a bit and I think may now be at its “new normal” making it perhaps an antidote to Petrobras in a sector that has some catching up to do.

Traditional Stocks: Caterpillar, Deere, Dow Chemical, JP Morgan, Lowes, MetLife, Wells Fargo

Momentum Stocks: Western Refining

Double Dip Dividend: Bristol Myers (ex-div 4/3), JP Morgan (ex-div 4/3), Medtronic (ex-div 4/3)

Premiums Enhanced by Earnings: none

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales or the sale of covered put contracts. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.

Some of the stocks mentioned in this article may be viewed for their past performance utilizing the Option to Profit strategy.

 

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Copyright 2013 TheAcsMan

Weekend Update – March 24, 2013

Common sense tells us that at some point there has to be some retracement following an impressive climb higher. My common sense has never been very good, so I’m beginning to question the pessimism that overtook me about 4 weeks ago.

Maybe the new version of a market plunge is simply staying at or near the same level for a few days. After all, who doesn’t believe that if you’re not moving ahead that you’re falling behind? It is all about momentum and growth. Besides, if history can be re-written by the victors, why not the rules that are based on historical observations?

During the previous 4 weeks I’ve made very few of the trades that I would have ordinarily made, constantly expecting either the sky to fall down or the floor to disappear from underneath. Of the trades, most have fallen in line with the belief that what others consider a timeless bit of advice. Investing in quality companies with reliably safe dividends may be timeless, but it can also be boring. Of course, adding in the income from selling options and it’s less so, but perhaps more importantly better positioned to cushion any potential drops in an overall market.

That makes sense to me, so there must be something flawed in the reasoning, although it did work in 2007-2009 and certainly worked in 1999-2000. I can safely say that without resorting to a re-writing of history.

Among the areas that I would like to consider adding this week are healthcare, industrials and financial sectors, having started doing so last week with Caterpillar (CAT) and Morgan Stanley (MS).

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend or “PEE” categories, with no selections in the “Momentum” category, befitting common sense. (see details). Additionally, there is a greater emphasis on stocks that offer monthly contracts only, eschewing the usual preference for the relatively higher ROI of weekly options for the guarantee of premiums for a longer period in order to ride out any turbulence.

Deere (DE) has been unnecessarily caught in the headlights recently, as it frequently trades in parallel to other heavy machinery giants, despite Deere not having the same kind of global economic exposure. The fact that it goes ex-dividend this week and always offers a reasonable premium, even when volatility is low, makes it a good selection, especially at its current price, which is down about 8% in a time that the S&P 500 has been up 3%. That seems a bit incongruous.

State Street Bank (STT) also goes ex-dividend this week. At a time when banks with global interests are at risk due to European Union and Euro related issues, State Street is probably the lowest profile of all of our “too big to fail” banks that play with the “big boys” overseas. Despite a marked climb, particularly from mid-January, it has shown resistance to potentially damaging international events.

While State Street Bank looks appealing, I have wanted to pick up shares of JP Morgan (JPM) for the past couple of weeks as it and its one time invincible CEO and Chairman, have come under increasing scrutiny and attack. Although it doesn’t pay a dividend this week, if purchased and call options are not assigned, it does offer a better dividend to holders than State Street and will do so on April 3, 2013. Better yet, Jamie Dimon will be there to oversee the dividend as both CEO and Chairman, as the Board of Directors re-affirmed his dual role late Friday afternoon, to which shares showed no response.

If you’re looking for a poster child to represent the stock market top of 2007, then look no further than Blackstone (BX). It was even hotter than Boston Chicken of a generation earlier, and it, too, quickly left a bad after taste. Suddenly, Blackstone no longer seems irrelevant and its name is being heard more frequently as buyouts, mergers and acquisitions are returning to the marketplace, perhaps just in time for another top.

Back in the days when I had to deal with managed care health companies, I wasn’t particularly fond of them, perhaps because I was wrong in the early 1980s when I thought they would disappear as quickly as they arrived. As it turns out, it was only the managed care company on whose advisory board I served that left the American landscape for greener pastures in The Philippines. Humana, one of the early managed care companies at that time was predominantly in the business of providing health care. These days it’s divested itself of that side of the social contract and now markets and offers insurance products.

Humana (HUM) is a low volatility stock as reflected in its “beta” of 0.85 and is trading close to its two year low. The fear with Humana, as with other health care with a large Medicare population is that new reimbursement rates, which are expected to be released on April 1, 2013 will be substantially lower. Shares have already fallen more almost 20% in the past 6 weeks at a time when insurers, on the other side of the equation, have fared well.

UnitedHealth Care (UNH) is the big gorilla in the healthcare room. It has really lagged the S&P 500 ever since being add to the DJIA. However, if your objective is to find stocks upon which you can generate revenue from dividends and the sale of option premiums, you really don’t need much in the way of share performance. In fact, it may be antithetical to what you really want. UnitedHealth Group, though, doesn’t have the same degree of exposure to Medicare fees, as does Humana.

While the insurers and the health care providers battle it out between themselves and the government, there’s another component to healthcare that comes into focus for me this week. The suppliers were in the news this week as Cardinal Health (CAH) reportedly has lost its contract with Walgreens (WAG). Cardinal Health and Baxter (BAX) do not do anything terribly exciting, they just do somethings that are absolutely necessary for the provision of healthcare, both in formal settings and at home. Although also subject to Medicare reimbursement rates and certainly susceptible to pricing pressure from its partners, they are consistently reliable companies and satisfy my need to look for low beta positions. Besides their option premiums, Cardinal Health also goes ex-dividend this week.

Then again, what’s healthcare without pharmaceuticals? Merck (MRK) is another of those companies whose shares I’ve wanted to buy over the past few weeks. It’s now come down from its recent Vytorin related high and may round out purchases in the sector.

With the safe and boring out of the way, there are still a few laggard companies that have yet to report their quarterly earnings before the cycle starts all over again on April 8th. Of those, one caught my attention.

Why anyone goes into a GameStop (GME) store is beyond me. Yet, if you travel around the country you will still see the occasional Blockbuster store, as well. Yet, somehow GameStop shares tend not to suffer terribly when earnings are released, although it is very capable of making large moves at any other time. The current proposition is whether the sale of puts to derive a 2.8% ROI in the event of less than a 12% decline in share price is worthwhile.

Now that’s a challenging game and you don’t even have to leave home to play it.

Traditional Stocks: Baxter, Blackstone, JP Morgan, UnitedHealth Group

Momentum Stocks: none

Double Dip Dividend: Cardinal Health (3/27), Deere (3/26), Humana (3/26), State Street Bank (3/27)

Premiums Enhanced by Earnings: GameStop (3/28 AM)

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales or the sale of covered put contracts. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.

Some of the stocks mentioned in this article may be viewed for their past performance utilizing the Option to Profit strategy.

 

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Copyright 2013 TheAcsMan

Weekend Update – March 17, 2013

Many stock charts look similar lately. For those old enough to remember Alan Greenspan’s first year as Chairman of the Federal Reserve Bank, the upward slope was all that many new investors and stock brokers had known for 5 years.

You may or may not recall how that second year went for him. It was the year that the stock market re-discovered the concept of gravity and the more complex notion of negative numbers.

To hear the one time Federal Reserve Chairman intone yesterday that the market is greatly undervalued sends whatever message you would like to hear when you digest his words.

“Irrational exuberance is the last term I would use to characterize the performance at the moment.”

The key to escaping responsibility and a stain on your prognosticating ability is the phrase “at the moment.” I use that a lot myself, as any moment can end up being the inflection point. It’s just too bad that the television cameras aren’t rolling at that point.

There’s much speculation lately about the source of any new money coming into the markets. Whether it’s refugees from the bond market or those that have sat on the sidelines since being shaken out sometime in the past 5 years. I’m not certain why the answer seems so hard to ascertain, but with all of the smug talk about those investors who represent the “smart money,” you might believe that any new money at the margins would be somewhat less smart. After all, besides perhaps being late to the party, they were either in bonds or cash all of this time.

How smart is that? Well, it depends on what side of the inflection you’re on when the question is asked.

Regardless of where any new money may be coming, all such funds are faced with the same dilemma. Do you chase something that’s already left the station or do you wait for the next opportunity to come along?

In a way, if you sell calls on your positions, you’re regularly faced with those question upon assignment. If you sell lots of weekly call options the question is a frequent one.

If you believe in history repeating itself, images such as this may be of concern:

Unless of course you’re very concrete, in which case there’s still three months left to frolic in higher prices and invest with impunity.

Approaching my fourth week of negativity and seeing a decrease in option income as a result of re-investing less of the proceeds of assigned shares, something has to reach a breaking point. Since the theoretical number of consecutive days that the market could go higher is unlimited, it may make sense to temper the conviction that only negative things wait ahead, especially for those unprepared.

Granted, the “doomsday preppers” that are featured on basic cable these days may not be the best of role models, there has to be something in-between that offers a compromise.

I think that compromise is avoiding most anything that your grandfather never had to opportunity to purchase.

The week’s selections are categorized as either Traditional, Momentum, or “PEE” (see details). Although my preference is to now look for high quality, dividend paying stocks as a defensive position, sadly, there are none such going ex-dividend this week.

I don’t recall the last time I considered so many stocks at any single time from the Dow Jones Index. In a month where the first 10 trading days took us higher, of the following Dow Index stocks only one outperformed the S&P 500.

Caterpillar (CAT) is approaching one of my favorite price points for its shares. Despite no negative news, other than what may be inferred though always questionable Chinese economic data, shares have been languishing and get more appealing daily. Those other heavy machinery companies without the potential Chinese exposure have been enjoying the market climb.

Home Depot (HD) has been a favorite stock ever since I dared to compare it to Apple (AAPL) in terms of performance, at a time that Apple was hitting on all cylinders. There’s nothing terribly exciting and there’s probably very little new information that can be added about Home Depot. It simply offers safety,a decent premium and continues to hit on all cylinders even as other more flashy companies have done otherwise. Let others debate whether increased housing sales are good or bad or whether it is a better buy than Lowes (LOW). It is simply a reliable portfolio partner.

JP Morgan Chase (JPM) is no longer made of Teflon, although its share price continues to be fairly resistant. With Congressional hearings starting today and findings that JP Morgan was indifferent, at best, to the risks that it was assuming in what became known as the “London Whale Trades,” it will re-join its banking brethren who are, by and large, seeing their stocks enjoy the results of the stress tests. The increased dividend announced is a nice little touch, as well an inducement to add shares.

I rarely look at the Communication Services or Utilities sectors unless I want safety and dividends. That was a good formula early on in the process of recovering from 2007 plunge. But it may also be a good formula to protect against downwinds. Not necessarily a very exciting approach, but sleeping at night has its own merits. AT&T (T), although not going ex-dividend this week is expected to announce its ex-dividend date sometime in the April 2013 option cycle. It will be my Ambien.

Merck (MRK) was the lone Dow component company to have out-performed the S&P 500 through March 14, 2013, purely on the big bump when it received favorable news regarding its controversial Vytorin product. Recently its option premiums have started to become more compelling. I had hoped to purchase shares last week in order to capture the dividend, however, the Vytorin news disrupted that, as I chose not to chase.

Starbucks (SBUX) is a bit more expensive than I would like in order to pick up new shares, but I always prefer to get shares when it hovers near a strike price. Although your grandfather may not have been able to ever purchase shares of this company, it definitely has a business model of which he would approve. Basic and simple, while offering an addictive product worked well for tobacco companies and is equally and consistently successful at Starbucks.

The lone Momentum stock this week is Coach (COH). Having just had shares assigned at $49 and still owning some higher priced shares at $51, I rarely like to chase stocks as their prices have gone higher than their assigned price. However, I think that the worst is over for Coach and it still carries cache, despite some equivocation regarding its status in the luxury sector of retail.

I’ve had shares of Coach come in and out of my portfolio on a consistent basis ever since the first assault on its future and subsequent 10% drop in share price. It’s sometimes a little maddening how out-sized its moves are, but it does tend to gravitate back toward its pre-assault home.

Although I do want to eschew risk, there may be some earnings related trades this week that may still offer a reasonable risk-reward scenario.

With the exception of LuLu Lemon (LULU), all of the potential earnings related stocks are ones that I’ve happily owned in the past year and would be comfortable owning again. LuLu Lemon, however, is the only one of those potential plays that would fall into the Momentum category, although all are retailers or consumer discretionary companies.

Retailing based on what may turn out to be a fad is always a risky proposition and LuLu Lemon has certainly shown that it’s capable of exhibiting large price moves, both earnings related and otherwise. Someday, it may be on the wrong side of being a fad, but there’s currently no indication of that happening and impacting this current upcoming earnings release. Although it is capable of a 15% move in either direction, those a bit more daring may find the premiums associated with a 10% move appealing.

My shares of Tiffany were assigned this Friday, having been held for 181 days, as compared to just 26 days for positions opened in 2012. It’s was an interesting run, with lots of ups and downs, but its performance beat the S&P 500 for its holding period by 4.9%. Now offering weekly options, it is even more appealing to me as a casual purchase. With earnings this week and a significant recent run-up in price, put options are aggressively priced and attractive, if you don’t mind the possibility of owning shares.

Williams Sonoma (WSM) is one of those stocks for which I wished weekly options existed, especially as it offers earning related opportunities at the very beginning of a monthly cycle. It too, is very capable of 10% moves in either direction upon earnings, but as Coach, does have a tendency to return if the market reacts negatively.

The final earnings related trade is Nike (NKE). Although it is also capable of 10% moves, it doesn’t offer premiums quite as enhanced as some of the other names. However, it certainly doesn’t carry the risk of being a fad and so, even with a precipitous drop there can be reasonable expectations for a return to health. Even in the event of assignments of puts sold to capitalize on earnings, there are worse things in the world than owning shares of Nike.

Traditional Stocks: AT&T, Caterpillar, DuPont, Home Depot, JP Morgan, Merck, Starbucks

Momentum Stocks: COH

Double Dip Dividend: none

Premiums Enhanced by Earnings: LuLu Lemon (3/21 AM), Nike (3/21 PM), Tiffany (3/22 AM), Williams Sonoma (3/19 PM)

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales or the sale of covered put contracts. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.

Some of the stocks mentioned in this article may be viewed for their past performance utilizing the Option to Profit strategy.

 

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Copyright 2013 TheAcsMan

The Clock is Ticking on the S&P 500

The age old question and certainly having its application in the stock markets is how does one see the glass. Is it half full or half empty? Is the market going higher from the current levels or have we already seen its best days?

I often like to say that I neither believe in technical nor fundamental analyses. Saying so is probably a reflection of the denial that has me refusing to believe that my intellectual capacity has greatly diminished.

While not really spending terribly much time with charts, I do glance at them. Like the spooky kid from “The Sixth Sense,” I do think I occasionally see patterns. I suppose to some degree that’s somehow related to a very basic aspect of technical analysis.

About a month ago, I started getting a bit leery about the market’s climb and have found it increasingly difficult to commit funds to new positions. That feeling was based upon what I perceived to be a very similar path that the market was following to that exhibited in the beginning of 2012.

Both paths are the kind that covered option sellers dislike, but fortunately don’t come along very often. Both times the market has essentially done nothing but climb higher.

This Thursday morning we’re fresh off closing higher nine straight days. In fact, March 2013 has yet to see a lower close. Needless to say, my prescience has yet to be fulfilled.

The last time that the market enjoyed a nine day winning streak was in November 1996 and it do so in May 1996, as well. I can say “enjoyed” because back then i wasn’t selling call options, so I’m fairly certain that I enjoyed those periods as well.

Out of curiosity and with an abundance of time on my hands as I await something to break in one direction or another, I was interested in seeing just how the market has done historically following such consistent daily climbs higher.

The short and quick answer is that such climbs in the S&P 500 or its related trading products, such as SPDR S&P 500 ETF (SPY) do not result in a reactive and sharp drop once the string of advances has come to an end. The market continues to climb.

So much for my theory and hopes that I could return to the more fulfilling days of trading ups and downs in the market.

While the current advance should, therefore, be a source of continued optimism, there may be a competing dynamic to be considered.

Looking at the bigger picture, beginning in May 1996, when that first 9 day advance occurred, which happened to be at the beginning of a secular market climb, it seems as if some kind of pattern was appearing.

Looking at the 17 year period illustrated above there may be some reason to believe that we are in the process of completing a 52 month cycle.

In each of the two previous broad and sustained market rallies the time frame has been approximately 52 months and the rallies have been on the order of 100% or greater. For those not chased out of the market as the nadirs were reached the recoveries were satisfying.

However, that satisfaction may have been tempered by the large market drops that ensued. In both previous cases the market plunged more than 40% over the course of the subsequent 18-30 months. Greed, optimism, a sense of invincibility may all have been factors in being caught in the continued downdrafts that devoured paper profits.

In hindsight, there were certainly precipitating factors that may have played a role in these drops, not all of which could have been predicted.

While perhaps the technology bubble should have been no surprise, nor should the real estate bubble, extrinsic factors, such as the terrorist attack of September 11, 2001 contributed to market declines during an already susceptible period. However, in the period from May 1996 to the present, there have also been an astonishing 18 periods of time when the market fell 10% or more.

As hard as it is to understand that the occasional fire that burns down a beloved forest is part of a cycle that sustains and evolves the environment, so too are those market declines an apparently necessary, or at least unavoidable component of reaching greater heights.

Clearly, and again, focusing on the big picture, those intermediate declines have been part of a healthy process as the S&P 500 has appreciated by more than 130% since that nine day trading range in 1996. Of course, that’s little solace to those that did see their profits disappear and that may have exited the market and greatly delayed their re-entry.

Being prepared for those declines is the tricky part. Balancing the need to be invested with the knowledge that much of your good work can be undone by a simple hiccough is disconcerting.

As we are now in the fifth year of the current climb and may be appro
aching that wall that we’ve seen twice before in the past 17 years, I continue to believe that there is ample reason to create reserves and take profits, even if that means leaving some on the table. Transitioning a portfolio may be a good strategy to gradually respond to future uncertainty.

In my case, that means being less likely to rollover covered contracts into the next cycle and instead being happy to see share assignments and realization of cash proceeds. It may also mean writing longer term contracts for those positions not likely to be assigned and grabbing larger premiums, albeit at lower time adjusted ROIs, in order to have a better chance of riding out any reversal.

Timing the market is something that most sane people would agree is impossible, certainly on a consistent basis. Everyone has the same charts to look at, yet the interpretations are in a wide range, often fitting personal outlooks and human emotions. The cynic and the optimist see the same data very differently and respond consistent with their own biases.

I am, by nature, a long term optimist, but a short term pessimist. Rarely, however, have I felt this level of pessimism. Sadly, I didn’t feel it in 2007, even after first having one of those warning mini- drops of 8% in July 2007.

The nice thing about being wrong is that you can always get back, although given that scenario, I have to believe that I would be even more pessimistic, as I don’t care to chase stocks as they’ve moved higher.

The other nice thing is as today (Thursday March 14, 2013) is thus far shaping up to be the 10th straight day of gains, I can look at the data all over again and perhaps arrive at a completely different conclusion.

Just like the professionals.

 

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The Clock is Ticking on the S&P 500

The age old question and certainly having its application in the stock markets is how does one see the glass. Is it half full or half empty? Is the market going higher from the current levels or have we already seen its best days?

I often like to say that I neither believe in technical nor fundamental analyses. Saying so is probably a reflection of the denial that has me refusing to believe that my intellectual capacity has greatly diminished.

While not really spending terribly much time with charts, I do glance at them. Like the spooky kid from “The Sixth Sense,” I do think I occasionally see patterns. I suppose to some degree that’s somehow related to a very basic aspect of technical analysis.

About a month ago, I started getting a bit leery about the market’s climb and have found it increasingly difficult to commit funds to new positions. That feeling was based upon what I perceived to be a very similar path that the market was following to that exhibited in the beginning of 2012.

Both paths are the kind that covered option sellers dislike, but fortunately don’t come along very often. Both times the market has essentially done nothing but climb higher.

This Thursday morning we’re fresh off closing higher nine straight days. In fact, March 2013 has yet to see a lower close. Needless to say, my prescience has yet to be fulfilled.

The last time that the market enjoyed a nine day winning streak was in November 1996 and it do so in May 1996, as well. I can say “enjoyed” because back then i wasn’t selling call options, so I’m fairly certain that I enjoyed those periods as well.

Out of curiosity and with an abundance of time on my hands as I await something to break in one direction or another, I was interested in seeing just how the market has done historically following such consistent daily climbs higher.

The short and quick answer is that such climbs in the S&P 500 or its related trading products, such as SPDR S&P 500 ETF (SPY) do not result in a reactive and sharp drop once the string of advances has come to an end. The market continues to climb.

So much for my theory and hopes that I could return to the more fulfilling days of trading ups and downs in the market.

While the current advance should, therefore, be a source of continued optimism, there may be a competing dynamic to be considered.

Looking at the bigger picture, beginning in May 1996, when that first 9 day advance occurred, which happened to be at the beginning of a secular market climb, it seems as if some kind of pattern was appearing.

Looking at the 17 year period illustrated above there may be some reason to believe that we are in the process of completing a 52 month cycle.

In each of the two previous broad and sustained market rallies the time frame has been approximately 52 months and the rallies have been on the order of 100% or greater. For those not chased out of the market as the nadirs were reached the recoveries were satisfying.

However, that satisfaction may have been tempered by the large market drops that ensued. In both previous cases the market plunged more than 40% over the course of the subsequent 18-30 months. Greed, optimism, a sense of invincibility may all have been factors in being caught in the continued downdrafts that devoured paper profits.

In hindsight, there were certainly precipitating factors that may have played a role in these drops, not all of which could have been predicted.

While perhaps the technology bubble should have been no surprise, nor should the real estate bubble, extrinsic factors, such as the terrorist attack of September 11, 2001 contributed to market declines during an already susceptible period. However, in the period from May 1996 to the present, there have also been an astonishing 18 periods of time when the market fell 10% or more.

As hard as it is to understand that the occasional fire that burns down a beloved forest is part of a cycle that sustains and evolves the environment, so too are those market declines an apparently necessary, or at least unavoidable component of reaching greater heights.

Clearly, and again, focusing on the big picture, those intermediate declines have been part of a healthy process as the S&P 500 has appreciated by more than 130% since that nine day trading range in 1996. Of course, that’s little solace to those that did see their profits disappear and that may have exited the market and greatly delayed their re-entry.

Being prepared for those declines is the tricky part. Balancing the need to be invested with the knowledge that much of your good work can be undone by a simple hiccough is disconcerting.

As we are now in the fifth year of the current climb and may be approaching that wall that we’ve seen twice before in the past 17 years, I continue to believe that there is ample reason to create reserves and take profits, even if that means leaving some on the table. Transitioning a portfolio may be a good strategy to gradually respond to future uncertainty.

In my case, that means being less likely to rollover covered contracts into the next cycle and instead being happy to see share assignments and realization of cash proceeds. It may also mean writing longer term contracts for those positions not likely to be assigned and grabbing larger premiums, albeit at lower time adjusted ROIs, in order to have a better chance of riding out any reversal.

Timing the market is something that most sane people would agree is impossible, certainly on a consistent basis. Everyone has the same charts to look at, yet the interpretations are in a wide range, often fitting personal outlooks and human emotions. The cynic and the optimist see the same data very differently and respond consistent with their own biases.

I am, by nature, a long term optimist, but a short term pessimist. Rarely, however, have I felt this level of pessimism. Sadly, I didn’t feel it in 2007, even after first having one of those warning mini- drops of 8% in July 2007.

The nice thing about being wrong is that you can always get back, although given that scenario, I have to believe that I would be even more pessimistic, as I don’t care to chase stocks as they’ve moved higher.

The other nice thing is as today (Thursday March 14, 2013) is thus far shaping up to be the 10th straight day of gains, I can look at the data all over again and perhaps arrive at a completely different conclusion.

Just like the professionals.

 

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Weekend Update – March 10, 2013

It only seems fitting that one of the final big stories of the week that saw the Dow Jones eclipse its nearly 6 year old record high would be the latest reports of how individual banks performed on the lmost recent round of “stress tests.” After all, it was the very same banks that created significant national stress through their equivalent of bad diet, lack of exercise and other behavioral actions.

Just as I know that certain foods are bad for me and that exercise is good, I’m certain that the banks knew that sooner or later their risky behavior would catch up with them. The difference is that when I had my heart attack the effects were restricted to a relatively small group of people and I didn’t throw any one out of their homes.

Having had a few stress tests over the years myself, I know that sometimes the anticipation of the results is its own stress test. But for some reason, I don’t believe that the banks that were awaiting the results are facing the same concerns. Although I’m only grudgingly modifying my behavior, it’s not clear to me that the banks are or at least can be counted to stay out of the potato chip bag when no one is looking.

Over the past year I’ve held shares in Goldman Sachs (GS), JP Morgan Chase (JPM), Wells Fargo (WFC), Citibank (C), Bank of America (BAC) and Morgan Stanley (MS), still currently holding the latter two. They have been, perhaps, the least stressful of my holdings the past year or so, but I must admit I was hoping that some among that group would just go and fail so that they could become a bit more reasonably priced and perhaps even drag the market down a bit. But in what was, instead, a perfect example of “buy on the rumor and sell on the news,” success led to most stressed bank shares falling.

The other story is simply that of the market. Now that its surpassed the 2007 highs it just seems to go higher in a nonchalant manner, not giving any indication of what’s really in the works. I’ve been convinced for the past 2 or three weeks that the market was headed lower and I’ve taken steps for a very mild Armageddon. Raising cash and using longer term calls to cover positions seemed like a good idea, but the only thing missing was being correct in predicting the direction of the market. For what it’s worth, I was much closer on the magnitude.

The employment numbers on Friday morning were simply good news icing on the cake and just added to my personal stress, which reflected a combination of over-exposure to stocks reacting to speculation on the Chinese economy and covered call positions in a climbing market.

Fortunately, the news of successful stress test results serves to reduce some of my stress and angst. With news that the major banking centers have enough capital to withstand severe stresses, you do have to wonder whether they will now loosen up a bit and start using that capital to heat up the economy. Not to beat a contrarian horse to death, but since it seems inevitable that lending has to resume as banking portfolios are reaching maturity, it also seems inevitable that the Federal Reserve’s exit strategy is now in place.

For those that believe the Federal Reserve was the prime sponsor of the market’s appreciation and for those who believe the market discounts into the future, that should only spell a market that has seen its highs. Sooner or later my theory has to be right.

I’m fine with that outcome and would think it wonderfully ironic if that reversal started on the anniversary of the market bottom on March 10, 2009.

But in the meantime, individual investment money still has to be put to work. Although I continue to have a negative outlook and ordinarily hedge my positions by selling options, the move into cash needs to be hedged as well – and what better way to hedge than with stocks?

Not just any stocks, but the boring kind, preferably dividend paying kind, while limiting exposure to more controversial positions. People have their own unique approaches to different markets. There’s a time for small caps, a time for consumer defensive and a time for dividend paying companies. The real challenge is knowing what time it is.

As usual, this week’s selections are categorized as being either Traditional, Momentum or Double Dip DIvidend (see details). As earnings season is winding down there appear to be no compelling earnings related trades in the coming week.

Although my preference would be for shares of Caterpillar (CAT) to approach $85, I’m heartened that it didn’t follow Deere’s (DE) path last week. I purchased Deere and subsequently had it assigned, as it left Caterpillar behind, for the first time in 2013, as they had tracked one another fairly closely. With the latest “news du jour” about a Chinese government commitment to maintaining economic growth, there may be enough positive news to last a week, at which point I would be happy to see the shares assigned and cash redeployed elsewhere.

Along with assigned shares of Deere were shares of McGraw Hill (MHP). It’s price spiked a bit early in the week and then returned close enough to the strike price that a re-purchase, perhaps using the same strike price may be a reasonable and relatively low risk trade, if the market can maintain some stability.

There’s barely a day that goes by that you don’t hear some debate over the relative merits of Home Depot (HD) and Lowes (LOW). Home Depot happens to be ex-dividend this week and, unless it causes havoc with you need to be diversified, there’s no reason that both companies can’t be own concurrently. Now tat Lowes offers weekly options I’ve begun looking more frequently at its movement, not just during the final week of a monthly option cycle, which coincidentally we enter on Monday.

I rarely find good opportunity to purchase shares of Merck (MRK). It’s option premium is typically below the level that seems to offer a fair ROI. That’s especially true when shares are about to go ex-dividend. However, this week looks more appealing and after a quick look at the chart there doesn’t appear to be much more than a 5% downside relative to the overall market.

Macys (M) is another company that I’ve enjoyed purchasing to capture its dividend and then hold until shares are assigned. It’s trading about 6% higher than when I last held shares three weeks ago and is currently in a high profile legal battle with JC Penney (JCP). There is certainly downside in the event of an adverse decision, however, it now appears as if the judge presiding over the case may hold some sway as he has suggested that the sides find a resolution. That would be far less likely to be draconian for any of the parties. The added bonuses are that Macys is ex-dividend this week and it too has been added to the list of those companies offering weekly option contracts.

Cablevision (CVC) is one of New York’s least favorite companies. The distaste that people have for the company goes well beyond that which is normally directed at utilities and cable companies. There is animus director at the controlling family, the Dolans, that is unlike that seen elsewhere, as they have not always appeared to have shareholder interests on the list of things to consider. But, as long as they are paying a healthy dividend that is not known to be at risk, I can put aside any personal feelings.

Michael Kors (KORS) isn’t very consistent with the overall theme of staid, dividend paying stocks. After a nice earnings related trade a few weeks ago and rise in share price, Kors ran into a couple of self-made walls. First, it announced a secondary offering and then the founder, Michael Kors, announced a substantial sale of personal shares. It also may have more downside potential if you are one that likes looking at charts. However, from a consumer perspective, as far as retailers go, it is still” hot” and offers weekly options with appealing enough premiums for the risk. This turned out to be one of the few selections for which I couldn’t wait until the following week and sent out a Trading Alert on Friday morning.

Seagate Technology (STX) is another theme breaker. In the past I have had good fortune selling puts after price drops, which are frequent and sudden. The additional downside is that when drops do come, the recoveries are relatively slow, so patience may be required, as well as some tolerance for stress if selling puts and the price starts approaching the strike.

The final theme buster is Transocean (RIG). Is there anything that Carl Icahn is not involved with these days? Transocean has been a frequent trading vehicle for me over the years. Happy when weekly options became available, I was disappointed a few weeks ago when they disappeared. It is part of the “Evil Troika” that I often own concurrently. If purchased, Transocean will once again join British Petroleum (BP) in the portfolio, replacing Halliburton (HAL) which was assigned on Friday. Transocean has re-instituted the dividend, although it will still be a few months until the first such payment. Icahn believes that it is too little and too late. I don’t know how he would have the wherewithal to change the “too late” part, but most people would be happy with the proposed 4+% dividend.

Traditional Stocks: Caterpillar, Lowes

Momentum Stocks: McGraw Hill, Michael Kors, Seagate Technology, Transocean

Double Dip Dividend: Cablevision (ex-div 3/13), Home Depot (ex-div 3/12), Macys (ex-div 3/13), Merck (ex-div 3/13)

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales or the sale of covered put contracts. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.

Some of the stocks mentioned in this article may be viewed for their past performance utilizing the Option to Profit strategy.

 

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Google is a Bargain

How many times have you heard the expression that “everything is relative?”

Certainly, when it comes to the price of anything, on some level a determination is made of its relative value. It can be a complicated process combining objective and subjective measures and is often re-assessed in hindsight.

That latter part is especially true with stock purchases. Buying and selling stocks that should be a simple exercise as you don’t really need to deal with intangibles, such as emotion, fear and the specter of a collapse of the Euro. At least not if you believe that the P/E ratio is a fair measure of value and a simple means by which to make comparisons. It would also helped if absolutely everyone agreed with you in that regard.

Barely a year ago it seemed as if all attention and all excitement was focused on Apple (AAPL) and what kind of price targets it could breach in its unstoppable ride. How often did analysts refer to Apple’s price movement as something unique and special?

As Apple is now having some difficulty living up to those lofty expectations it really shouldn’t come as much of a surprise that it has hit a wall faced by other invincibles of past. Being unique and special is not all that unique if history is a guide. I did my best to suggest that in a number of Apple-centric articles in the past 6 months. While history suggests that Apple will fall even further it gives reason to suspect that Google will march significantly higher.

Let’s go to the charts.

Just look at what happened to some of its sector mates about a dozen years ago. Whether Cisco (CSCO), Microsoft (MSFT) or Intel (INTC), their charts all look very similar. Although the 200,000% increase in shares of Cisco at its peak may be an outlier, Microsoft experienced a 57,000% climb, while Intel and Apple had 18,800% and 21,400% increases from their opening day close trades.

While Cisco, Microsoft and Intel all experienced their high points during the technology bubble, Apple waited the same dozen years to begin resembling the pattern of its Silicon Valley neighbors. Coincidentally, that was the length of time that Steve Jobs was estranged from Apple, before his return following the purchase of Next Computer by Apple.

By the standards of a decade ago, Apple’s share price may still have some way to go to match Microsoft’s 60% drop, Intel’s 74% retreat or Cisco’s 76% plunge. Thus far, with its recent low of $420, Apple has fallen 40% from its 2012 peak. All you need to do is slide its representation on the charts above or below over to the left 12 years and see how nicely they superimposes with the others.

But then there’s Google (GOOG). The company that’s feared, has moved into everyone’s space, is willing to fail, yet somehow garners little respect and attention. Even as it achieved its trading highs, surpassing the $800 level, analysts downplayed the achievement. Instead of discussing the juggernaut that Google is and its expansive vision, the price increase has widely been attributed to people trading out of Apple and into Google. Those are the same people that downplay market rallies by saying that it occurred on light volume. If your banker doesn’t ask about the white powder on your deposits, they’re not likely to ask if they were the result of light volume.

Google simply isn’t really generating the same kind of excitement as Apple did just a year ago. No one has even thought Google deserved an utterance of the “Law of Large Numbers” as a reason why it would have difficulty in continuing its climb.

 

Granted, Google didn’t start it’s first day of trading as a sub-$10 stock, so it is a bit more difficult to achieve a 200,000% gain. To do so, its share price would have to advance to approximately $200,000, although it could conceivably split its shares on the order of the 288 fold times that Microsoft has done. While Cisco only had to climb to $22 to increase its share price 100% after it opened for trading, Google had to climb $108 for that distinction. At $838 it is currently up less than 700% from its closing trade on its IPO day in 2004.

700%? That’s nothing by relative standards. That is the poor section of Atherton, barely even good enough to step foot into Palo Alto. Besides, even Johnson & Johnson (JNJ) was able to mount that kind of appreciation in a nine year period beginning in the mid-1980s. By historical standards there’s nothing rarefied about Google’s performance.

Certainly, by no relative measure is Google over-extended. Further, Google’s mettle has been tested and it has shown its leadership qualities. Although Google fell more than the others during the market meltdown beginning in 2007, its descent started later and ended earlier. In fact, Google started its climb back more than three months before the market bottom, having advanced more than 40% in those months preceding the market nadir.

While Apple had out-performed Google in both the periods from the October 2007 peak and the March 2009 bottom, Google has handily beaten the others.

Google’s most recent advance began November 15, 2012, moving forward 20.3%. Coincidentally, the S&P 500’s march higher (13.6%) began on November 15, 2012.

Yet the Google chart looks nothing like that of its one time glorious and subsequently fallen neighbors.

 At this point all it has done is to return and mildly surpass its 2007 peak price.

Once ad click money truly started flowing in Google has always taken the opportunity to try new and exciting ventures, most of which have been scuttled or perpetually stayed in beta. While small in the scope of the enormously growing enterprise, under the leadership of Larry Page the ventures are increasingly bold and increasingly poised to create meaningful revenue streams in addition to the growing annuity that ad click revenue has become. Even if no meaningful or immediate direct revenue is recognized from a venture, Google is a disruptor in the market place and is able to soften the underbelly of a potential competitor. Just ask Apple.

With a growing cash horde and a dividend in its inevitable future, Google has already one upped Apple with its proposed, albeit controversial, stock split. Arguably, the series of stock splits that Microsoft, Intel and Cisco undertook helped to fuel their stock appreciation and Google is still on the ground floor in that regard, standing to benefit from the illusory increase in value.

Most of all, Google is still such a relatively young company that is just learning to walk. Granted, it is doing so during a very different era than did its counterparts, but even by Apple’s modest 18,000% growth, which was not artificially fueled by the technology boom, Google has plenty of room to still return incredible profits to new investors, if it follows the script that has been played out by others.

Finally, I would be negligent, and certainly not mindful of my own history, to not suggest that there are covered option opportunities always available with Google. Although I do not currently own shares, Google has been a frequent source of premium income for me over the past 6 years. With extended weekly options now available as well, there are many choices among strike prices and contract length that both price bulls and bears can find appealing. Even those thinking that there may be no more than an 8% drop by April 20, 2013 can get a !% ROI for their pessimism. For those with a tighter price range the rewards can be substantial if Google stays within that range.

Google is also always an exciting play upon earnings announcement. Of course the premature announcement of two quarters ago was more excitement than many would want to repeat, especially, RR Donnelley (RRD), but Google is a frequent candidate for the “Premiums Enhanced by Earnings” strategy, either through covered calls or put sales, whether its shares move up or down. Seeking to take advantage of its historically large earnings related moves may be a good, and fairly conservative mechanism to find an entry point for those not currently holding shares.

I’ll be looking forward to earnings on April 15th and hope to be in a position to pay a fair share of taxes on the profits the next April 15th.

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Weekend Update – March 3, 2013

Sequester This.

Despite being a reasonably smart guy, I’ve never understood how to play the game of “craps.” It’s too fast, there are too many possible decisions and when you get right down to it, it’s name is probably based on something that aptly describes something you’d rather not touch or taste. A name like that should serve as fair warning to stay away. Sometimes a glance at the people playing the game sends the same message.

Not that a word like “sequester” is any better. The very sound of “sequestration” makes me want to cringe as I think about what my poor dachshund had to endure. It’s probably almost as bad as what the individual investor has to endure on a maddeningly frequent basis as markets whipsaw for no apparent reason, yet there’s never a shortage of reasons to explain the unexplainable. At least the dog never required an explanation and eventually went on his way, fully healed from the experience. I can’t say the same thing about my portfolio.

The events that spurred the past week’s early sell-off was by all accounts equal parts Italy, Federal Reserve and Sequestration. Later in the week, as the market was knocking at the gates of 2007’s record levels it was Italy, the Federal Reserve and the lack of interest in the Sequestration that were responsible for the turn of events.

What’s not to understand?

Just a few months earlier the new year’s gains were said to be due to averting the Fiscal Cliff. You may or may not recall the gyrations the market took as competing elected officials decided to vent and spew as they raised and then dashed hopes of a meaningful resolution and simply played craps with other people’s portfolios. Since we’ve all learned that ethical guidelines regarding investment portfolios of elected officials are rather lax, you had to wonder just how the “house” odds were stacked in their game of craps.

This time around as the Sequestration deadline loomed the market just kept chugging along higher. It’s hard to understand that as it seems that there can only be a downside, regardless of whether a resolution is reached or not, unless it becomes clear that there really is no danger posed by this thing they’ve called “The Sequester.”

It seems odd that many are taking great pains to paint frightening and untenable outcomes if the sequestration becomes reality. Yet no one seems to care. Not the man on the street, who based on his knowledge of geography can’t possibly have any idea of what the sequestration is, nor the markets.

To me, the ultimate game of craps was being played this week, as no one really knows what either outcome to this most recent crisis will bring the economy or the markets. Yet that didn’t stop concerned parties from dueling press conferences and then abandoning Washington, DC prior to the deadline and prior to an agreement. Most of all, it didn’t end money pouring into stocks and pushing them higher and higher.

Couple that uncertainty with the certainty that myriads of people beginning to foam at the corners of their mouths felt as we got tantalizingly closer to the heights of 2007. That’s precisely how storms are created.

Just as there were dueling certainties, we also had dueling countdown clocks this past week. Nothing good ever comes of those clocks, whether for the sequestration deadline or Dow points until 14164.

Option to Profit subscribers know that I’ve been unusually dour the past week or two out of concern for a repeat of 2012’s market month long 9% drop. The course that we’re following currently seems eerily familiar.

With that personal concern it’s somewhat more difficult to select stock picks for the coming week, particularly while also looking for opportunities to raise cash positions in preparation for bargains ahead.

However, as Jim Cramer has long said, “there’s always a bull market somewhere.”

I don’t know if that’s true, but there’s always a strategic approach to fit every circumstance.

In this case, while I strongly favor weekly options, where they are available, concerns regarding a quick and sharp downturn lead me to look more closely at monthly or even longer option opportunities in an attempt to still put money to work but to not be left empty handed after expiration of a weekly contract, while then holding a greatly devalued position. The longer term contracts, although perhaps offering lower time adjusted ROIs, do offer some opportunity to assure premium flow for more than a single week and do allow for greater time to ride out any storms.

The week’s selections are categorized as either Traditional, Momentum, Double Dip Dividend or “PEE” and include a look at premiums derived from selling weekly, remaining March 2013 options or April 2013 options (see details).

Deere (DE) was on my list last week, as well. But like most items on the list last week, it remained unpurchased as my cautionary outlook was already at work. In the past month Deere has already had a fairly big drop compared to the S&P 500. I don’t see very much sequester related risk with a position right now, but Deere does have a habit of getting dragged along with others reacting to bad industrial news.COF

Citibank (C) was also on the list last week, but was replaced by Morgan Stanley (MS) as one of the few trades of the week. Although I’m expecting some market challenges ahead, I don’t believe that the decline will be lead by financials, which have already been week of late. If the sequestration occurs and some of the forecasted job cuts become reality, in the short term, I would expect the credit side of Capital One’s (COF) business to benefit. I’ve had Capital One on my wish list in the past, but haven’t bought shares for quite a while, as its monthly only options premiums were always off putting. Now that there are weekly options available, it seems strange that I’d be looking more toward the security provided by the longer term contracts.

With all of the dysfunction at JC Penney (JCP) and Sears’ (SHLD) ambivalence about its position in retail, Kohls (KSS) is just a solid performer. Its been in the news lately, including the rumor category. My shares were recently assigned, but as earnings are out of the way and price is returning to the comfort range, Kohls, too, is another of the boring, but reliable stocks that can be especially welcome when all else is languishing.

Although I own Williams Companies (WMB) with some frequency, I’m not certain that I can refer to it as one of my “favorites.” It’s performance while holding it is usually middling, but sometimes it’s alright to be just average. Williams does go ex-dividend this week and is also in my comfort zone with its current price.

YUM Brands (YUM) is one of those stocks that seem to have a revolving door in my portfolio. It is probably as responsive to analysts interpretation of events as any stock that I’ve seen and it typically finds its way back to where it started before the poorly conceived interpretations were unleashed on the investing public. I had wanted to pick up shares last week to replace those assigned the week prior, but simply valued cash more.

Praxair (PX) is just a boring company whose big gas tanks are ubiquitous. Sometimes boring companies are just the right tonic, when the stresses of a falling market are prevailing, at least in my mind. Making a dividend payment this week makes it less boring and perhaps it still has enough helium on hand to resist falling.

Pandora (P) reports earnings this week and it is fully capable of moving 25% on that event. At the moment, the options market is factoring in approximately a 16% move. AT it’s current price, I would strongly consider taking chances of receiving a 1+% ROI in return for seeing a 25% or less price drop.

On a positive note, we can draw a parallel from an astute observation from more than a century ago. Since “everything that can be invented has been invented,” there was clearly no future need for the Patent Office. So too, with the passing of the Sequestration, there can be no other unforeseen man made fiscal crises possible, so it should all be milk and honey going forward. Don’t let the higher volatility fool you into believing otherwise.

Traditional Stocks: Deere, Capital One, Kohls

Momentum Stocks: Citibank, YUM Brands

Double Dip Dividend: Williams Company (ex-div 3/6)

Premiums Enhanced by Earnings: Pandora (3/7 PM)

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales or the sale of covered put contracts. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.

Some of the stocks mentioned in this article may be viewed for their past performance utilizing the Option to Profit strategy.

 

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