I Love Caterpillr

That may be a bit of an over-statement. There’s probably a psychiatric diagnosis for someone who professes deep emotional attachment to inanimate objects.

But when it comes to being a poster child for a covered option strategy, not too many can do a better job of demonstrating what is possible than Caterpillar (CAT).

Caterpillar reported earnings this morning and by noon its shares were about 5% lower. Its earnings and its reduced guidance were not the sort of things that inspire confidence. It’s CEO, Douglas Oberhelman, has been vilified, pilloried and himself been used as a poster child of an “out of touch” CEO in the past. Today’s news confirms that feeling for many. If there is such a thing as a “rational market,” today’s response is reflective of that kind of market.

Even objective people, such as Herb Greenberg of TheStreet.com described Oberhelman’s appearance on CNBC this morning as seeming or sounding “distraught.” That’s not a terribly good image to present if one’s objective is to inspire confidence in leadership and offer support for share price.

Caterpillar has long been the stock that everyone loves to hate. Down almost 6% year to date, essentially all of it coming today, it has certainly lagged the broader market and has had very tangible opportunity costs, even prior to today’s disappointments.

The smart money bid shares up quite strongly yesterday, approaching $90, a level not seen in 7 months. Presumably, it was the smart money, because it seems unlikely that individual investors would commit with such urgency in advance of a scheduled risk factor.

Certainly, the very high profile position taken by famed short seller, Jim Chanos, calling a short of Caterpillar as his best trade idea of 2014 and pointing out that Oberhelman “routinely misses forecasts,” hasn’t done much to propel shares forward.

But that’s the point.

What has made Caterpillar such a wonderful covered option stock, whether owning shares and selling calls or selling puts, is its mediocrity. It has simply traded in a narrow price range alternating between disappointment and hope. That creates the perfect environment in which to put a stock to work, not be capital appreciation of shares, but rather through production of premium income and dividends.

In the example illustrated below, representing Trading Alerts sent to subscribers during a 15 month period, there were 14 different occasions initiating new positions or selling puts. The average share price was slightly above today’s noon time price of Caterpillar shares. In essence indicating no movement in price over that time. Including dividends, however, Caterpillar shares would have shown a 2.4% ROI during that period.

By contrast, the approach of serial purchase of shares or sale of puts, awaiting assignment or rolling over option contracts when possible, as expiration occurs or is likely to occur has had an ROI of 47%, assuming equal lots of shares purchased in all transactions. During that same time period the S&P 500 appreciated 30.8%

In the example above very little of the gain can be attributed to capital appreciation of shares. In fact, most of the share purchases was coupled with the sale of in the money or near the money options in an effort to optimize option premiums at the expense of capital gains.

Over the course of the time period evaluated Caterpillar shares did reach a high of $99 on February 1, 2013. Perhaps not coincidentally, that occurred during a period of time that I didn’t own shares, having had shares assigned in early January 2013 and not finding a comfortable re-entry point until March.

For the buy and hold investor with perfect timing who had purchased shares on July 2, 2013 and sold them on February 1, 2013, the ROI including dividends would have been 18.9% for the 7 month period.

I’m one usually loathe to annualize, because I believe it tends to inflate returns, but assuming the 18.9% return could be maintained for an entire year, the annual ROI would have been 32.4%

Not shabby, but remember, that required perfect timing and the ability, discipline and foresight to sell at the top and further assumed that performance could be replicated.

Compare that to sticking with the mediocrity exhibited by Caterpillar and using it as a tool of convenience. Trading in and out of positions as its price indicated, rather than based on technical or fundamental factors. That can be left to the smart money.

With shares taking today’s hit I’m likely to consider adding shares, with already two open lots in hand, one of which is set to expire next week at $84 and the other at the end of the November 2013 cycle with an $87.50 strike price.

If not now, the one thing that I feel fairly certain about is that Caterpillar will present other opportunities and price points at which to find entry and capitalize on its inability to thrive in a thriving market.

Thank you, Doug Oberhelman. We need more CEOs who can walk that share price tight wire and stay within narrow confines. It would take the strain of thought and luck out of the investing process.

 

Weekend Update – October 13, 2013

This week I’m choosing “risk on.”

For about 6 months I’ve been overly cautious, having evolved from a fully invested trader to one starting most weeks at about 40% cash reserves and maintaining about 25-30% by week’s end after initiating new positions.

Despite the belief that something untoward was right around the corner, the desire for current income through the purchase of stocks and the sale of options has been strong enough to temper the heightened caution on an ongoing basis for much of the past half year.

With uncertainty permeating the market’s mood, eased by late last week’s glimmer of hope that perhaps a short term debt ceiling increase may be at hand, “risk on” isn’t the most likely of places to find me playing with my retirement funds, but that’s often where it’s the most interesting, especially if the risk is one of perception more than one of probability.

While we may all have different operational definitions of what constitutes “risk” I consider beta, upcoming known market or stock moving events, the unknown, past price history and relative performance. Tomorrow the formula may be entirely different, as may tolerance for risk or willingness to burn down the cash reserves.

However, trying to dispassionately look at the current market and all of the talk about a correction, one metric that I’ve been using for the past few months reminds me that we’re doing just fine and that risk is still tolerable, even in the context of uncertainty.

Although I continue to believe that we can’t just keep moving higher, I’m not quite as dour when seeing that we are essentially at the same levels the S&P 500 stood on May 21, 2013 and June 18, 2013.

Those dates reflect relative high points, each of which gave way to the FOMC minutes or a press conference by Federal Reserve Chairman Bernanke.

In fact, we’re actually at a higher level than either of those two previous peaks, now trailing only the all time high of September 18, 2013 by less than 1.5%. So all in all, not too bad, especially since that 50 Day Moving Average that was breached by the S&P 500 earlier in the week was quickly remedied and the 200 Day Moving Average remains relatively distant.

From May 21 to June 5, then from June 18 to June 24, August 2 to 27 and finally September 19 to October 6, we have gone down a combined 16.7% in a cumulative trading period of 13 weeks or the equivalent of a quarter.

What more do you want? Armageddon?

For the past few months I’ve been focusing increasingly on new positions that have been trading below the May and June highs and preferably under-performing the S&P 500 at the same time. However, within that framework I’ve focused increasingly on near term dividend paying stocks and those more likely to fall into the “Traditional” category, typically low beta and attempting to avoid any known short term risk factors.

That has meant fewer “Momentum” positions and fewer earnings related trades. But up until Friday’s continuation of the hope induced rally, I had a number of “Momentum” stocks on my radar, all of which I had already owned and anticipated being assigned, but ripe for re-purchase in the pursuit of risk heightened premiums, but with less risk than readily apparent.

As it turned out Abercrombie and Fitch (ANF) got caught up in The Gaps’ same stores problem and whip-sawed in trading and I ultimately rolled over the position. Meanwhile, Mosaic (MOS) fell as investors were somehow surprised that Potash (POT) adjusted its guidance downward to reflect lower prices stemming from a collapse of the cartel.

As it would turn out Phillips 66 (PSX) was assigned, but soared, making it too expensive for repurchase, but that can change very quickly.

This week there are two deadlines. One is the end of the October 2013 option cycle, but the other is October 17, 2013, which Treasury Secretary Jack Lew proclaimed to be the day after which none of his “tricks” would be able to sustain the Treasury’s count and be able to pay our bills.

In a word? That’s when we would see the United States go into default on its obligations.

Under Senate questioning last week Lew acquitted himself quite well and demonstrated that he wasn’t very patient with regard to suffering fools. Uncharacteristically there appeared to be less self-aggrandizing statements in the form of questions coming from the committee members.

It may not be entirely coincidental that minutes after Lew’s appearance, House Speaker Boehner’s office announced that the Speaker would be making a statement reflecting upcoming meetings with the Administration, reflecting the possibility of some agreement.

For those that remember past such budgetary crises, you’ll recall that the market typically reacted to the hopes and then crashed along with the dashed hopes, in an eerily rhythmic manner.

On Saturday morning, word came from Eric Cantor (R-VA) that President Obama rejected the House offer. Unusually, GOP leadership skipped the opportunity to step up to the microphone to push their version of righteousness.

This week, in anticipation of the possibility of dashed hopes as may come from an appearing setback, my definition of “risk on” includes positions already trading at depressed levels.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum and “PEE” categories this week (see details).

For dividend lovers this week offers Footlocker (FL), Colgate (CL) and Caterpillar (CAT). All under-performing the S&P 500 YTD.

Colgate, however, is higher than its June 2013 high and has a surprisingly high beta, despite the perceived sedate nature of being a consumer defensive stock. Perhaps that combination makes it a “risk on” position for me. Coupled with a dividend that is lower than the overall S&P 500 average it may not readily appear to be worth the time, but then again, how much additional downside should accrue from a US default?

I already own two lots of Footlocker and three is generally my limit, as it precluded including Mosaic in this week’s recommendations. Footlocker doesn’t report earnings until the December 2013 option cycle, so a little bit of risk is removed, although in the world of retail you are always at risk for any of your competitors that may still report monthly comparison data, just look at the pall created by The Gap (GPS) and L Brands (LTD) this past week.

While a pall was created by L Brands and it is higher than those referenced high points it is now down a tantalizing 10% in a week’s time. I’ve already owned shares on five separate occasions this year and have been waiting for an opportunity to do so again. It is a generally reliably trading stock that had simply climbed too far and for a month’s time traveled only in a single direction. That’s rarely sustainable. The combination of premium and dividend makes L Brands worthy of consideration in a sector that has been challenged of late. The lack of weekly options makes ownership less stressed by day to day events for those otherwise inclined to like weekly options.

Not to be outdone, Joy Global (JOY) is a stock that’s been worth owning on 7 distinct occasions this year. It has consistently traded in tight range and has been able to find its way home if temporarily wandering. High beta, well underperforming the S&P 500 and lower than both of the two earlier market high points continues to make it an appealing short term selection, especially with earnings still so far off in the future.

I’ve been waiting to add shares of Caterpillar for a while, having owned it only four times in 2013, as compared to nine occasions in 2012. However, the upcoming dividend makes another purchase more likely. Despite the thesis advanced by short seller Jim Chanos against Caterpillar, it has, thus far continued to maintain its existence in a tight trading range, making it an excellent covered option candidate.

JP Morgan Chase (JPM) reported its earnings this past Friday and reported a loss for the first time under Jamie Dimon’s watch. Regardless of your position on the merits of the myriad of legal and regulatory cases which have resulted in spectacular legal fees and fines, JP Morgan has acquitted itself nicely on the bottom line. While there is still unknown, but tangible punishment ahead, for which shareholders are doubly brutalized, I think a sixth round of share ownership is warranted at this price level.

Williams Sonoma (WSM) was one of the first stocks that I purchased specifically to attempt to capture its dividend and have it partially underwritten by an option premium. It fell a bit by the wayside as weekly options appeared on the scene. However, as uncertainty creeps into the market there is a certain comfort that comes from a monthly or even longer term option contract. WHile it has come down nearly 15% in the past two months and is now priced lower than during the May and June market highs, Williams Sonoma’s dirty little secret is that it has still outperformed the S&P 500 YTD by a whisker.

SanDisk (SNDK) had its eulogy written many years ago when flash memory was written off as being simply a commodity. Always volatile, especially in response to earnings, which have seen plunges on each of those last two occasions, now may not be the time to believe that “the third time is a charm,” although I do. Despite that, my participation, if any, would be in the sale of out of the money puts, as the options market is implying a move of approximately 7% and that may not be aggressive enough, given past history.

FInally, Align Technology (ALGN) reports earnings this week. In the business of making orthodontic therapy so easy that even a monkey could do it, the company’s prospects have significantly improved as its treatment solutions are increasingly geared toward children. That’s important because their traditional customer base, adults, views orthodontic treatment as discretionary and, therefore, represents an economically sensitive purchase. But most anyone with kids knows that orthodontic treatment isn’t discretionary at all. It can be as close to life and death as you would like to experience. This kind of orthodontic care represents a new profit center for many dental offices and a boon to Align Technology. While I expect good earnings numbers, shares have already had a 13% price decline in the past two weeks. I would most likely consider entering a position by means of selling out of the money puts. In this case for a single week’s position, if unassigned, as much as a 12% price drop could still yield a 1.3% ROI, as the options market is implying a 9% earnings related move.

Traditional Stocks: JP Morgan, L Brands, Williams Sonoma

Momentum Stocks: Joy Global

Double Dip Dividend: Caterpillar (ex-div 10/17), Colgate (ex-div 10/18), Footlocker (ex-div 10/16)

Premiums Enhanced by Earnings: Align Technology (10/17 PM), SanDisk (10/16 PM)

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk. 

Weekend Update – September 22, 2013

Generally, when you hear the words “perfect storm,” you tend to think of an unfortunate alignment of events that brings along some tragedy. While any of the events could have created its own tragedy the collusion results in something of enormous scale.

For those that believe in the wisdom that can be garnered from the study of history, thus far September 2013 has been at variance with the conventional wisdom that tell us September is the least investor friendly month of the year.

What has thus far made this September different, particularly in contrast to our experience this past August, has been a perfect storm that hasn’t come.

Yet, but the winds are blowing.

Barely three weeks ago we were all resolved to another bout of military action, this time in Syria. History does tend to indicate that markets don’t like the period that leads up to hostilities.

Then we learned that the likely leading contender to assume the Chairmanship of the Federal Reserve, Larry Summers, withdrew his name from consideration of the position that has yet to confirm that its current Chairman will be stepping down. For some reason, the markets didn’t like prospects of Larry Summers being in charge but certainly liked prospects of his being taken out of the equation.

Then we were ready to finally bite the bullet and hear that the Federal Reserve was going to reduce their purchase of debt obligations. Although they never used the word “taper” to describe that, they have made clear that they don’t want their actions to be considered as “tightening,” although easing on Quantitative Easing seems like tightening to me.

There’s not too much guidance that we can get from history on how the markets would respond to a “taper,” but the general consensus has been that our market climb over the past few years has in large part been due to the largesse of the Federal Reserve. Cutting off that Trillion dollars each year might drive interest rates higher and result in less money being pumped into equity markets.

What we didn’t know until the FOMC announcement this past Wednesday was what the market reaction would be to any announcement. Was the wide expectation for the announcement of the taper already built into the market? What became clear was that the market clearly continues to place great value on Quantitative Easing and expressed that value immediately.

As long as we’re looking at good news our deficit is coming down fast, employment seems to be climbing, the Presidents of the United States and Iran have become pen pals and all is good in the world.

The perfect storm of good news.

The question arises as to whether any eventual bad news is going to be met with investors jumping ship en masse. But there is still one thing missing from the equation. One thing that could bring us back to the reality that’s been missing for so long.

Today we got a glimpse of what’s been missing. The accelerant, if you will. With summer now officially over, at least as far as our elected officials go, the destructive games have been renewed and it seems as if this is just a replay of last year.

Government shutdowns, debt defaults and add threats to cut off funding for healthcare initiatives and you have the makings of the perfect storm, the bad kind, especially if another domino falls.

Somewhat fortuitously for me, at least, the end of the September 2013 option cycle has brought many assignments and as a result has tipped the balance in favor of cash over open positions.

At the moment, I can’t think of a better place to be sitting as we enter into the next few weeks and may find ourselves coming to the realization that what has seemed to be too good to be true may have been true but could only last for so long.

While I will have much more cash going into the October 2013 cycle than is usually the case and while I’m fully expecting that accelerant to spoil the party, I still don’t believe that this is the time for a complete buying boycott. Even in the middle of a storm there can be an oasis of calm.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum and “PEE” categories this week (see details).

After Friday’s loss, I have a difficult time in not being attracted to the idea of adding shares of Caterpillar (CAT). It has been everyone’s favorite stock to deride for its dependence on the Chinese economy and for its lack of proactive leadership in the past year. Jim Chanos publicly proclaimed his love for Caterpillar as his great short thesis for the coming year. Since it has trailed the S&P 500 by 16% on a year to date basis there may be good reason to believe that money goes into Caterpillar shares to die.

However, it has been a perfect stock with which to apply a serial covered option strategy. In 13 trades beginning July 2012, for example, it has demonstrated a 44.9% ROI, by simply buying shares, collecting dividends and premiums and then either re-purchasing shares or adding to existing shares. In that same time the index was up 28%, while Caterpillar has lost 3%.

It’s near cousin Deere (DE) also suffered heavily in Friday’s market and has also been an excellent covered option trade over the past year. Enhancing its appeal this week is that it goes ex-dividend. I currently own shares, but like Caterpillar, in smaller number than usual and purchases would provide the additional benefit of averaging down cost, although I rarely combine lots and sell options based on average cost.

Also going ex-dividend this week is Dow Chemical (DOW). This has been one of those companies that for years has been one of my favorite to own using the covered option strategy. However, unlike many others, it hasn’t shown much propensity to return to lower price levels after assignment. I don’t particularly like admitting that there are some shares that don’t seem to obey the general rule of gravity, but Dow Chemical has been one of those of late. I also don’t like chasing such stocks particularly in advance of what may be a declining market. However, with the recent introduction of weekly options for Dow Chemical I may be more willing to take a short term position.

YUM Brands (YUM) is similar in that regard to Dow Chemical. I’ve been waiting for it to come down to lower price levels, but just as it had at those lower levels, it proved very resilient to any news that would send its shares downward for a sustained period. As with Caterpillar, YUM Brands is tethered to Chinese news, but even more so, as in addition to economic reports and it’s own metrics, it has to deal with health scares and various food safety issues that may have little to no direct relationship to the company. YUM Brands does help to kick off the next earnings season October 8th and also goes ex-dividend that same week.

Continuing along with that theme, UnitedHealth Group (UNH) just hasn’t returned to those levels at which I last owned shares. In fact, in this case it’s embarrassing just how far its shares have come and stayed. What I can say is that if membership in the Dow Jones Index was responsible, then perhaps I should have spent more time considering its new entrants. However, with the Affordable Care Act as backdrop and now it being held hostage by Congressional Republicans, shares have fallen about 6% in the past week.

Mosaic (MOS) is among the companies that saw its share price plummet upon news that the potash cartel was collapsing. Having owned much more expensive shares at that time, I purchased additional shares at the much lower level in the hope that their serial assignment or option premium generation would offset some of the paper losses on the older shares. Although that has been successful, I think there is continuing opportunity, even as Mosaic’s price slowly climbs as the cartel’s break-up may not be as likely as originally believed.

If you had just been dropped onto this planet and had never heard of Microsoft (MSFT) you might be excused for believing this it was a momentum kind of stock. Between the price bounces that came upon the announcement of the Nokia (NOK) purchase, CEO Ballmer’s retirement, Analyst’s Day and the announcement of a substantial dividend increase, it has gyrated with the best of them. Those kinds of gyrations, while staying within a nicely defined trading range are ideal for a covered option strategy.

Cypress Semiconductor (CY) goes ex-dividend this week. This is a stock that I frequently want to purchase but am most likely to do so when its purchase price is near a strike level. That’s especially true as volatility is low and there is less advantage toward the use of in the money options. With a nice dividend, healthy option premiums, good leadership and product ubiquity, this stock has traded reliably in the $10-12 range to also make it a very good covered option strategy stock selection.

Every week I feel a need to have something a little controversial, as long as there’s a reasonable chance of generating profit. The challenge is always in finding a balance to the risk and reward. This week, I was going to again include Cliffs Natural Resources, as I did the previous week, however a late plunge in share price, likely associated with reports that CHinese economic growth was not going to include industrial and construction related growth, led to the need to rollover those shares. I would have been happy to repurchase shares, but not quite as happy to add them.

Fortunately, there’s always JC Penney (JCP). It announced on Friday that it was seeking a new credit line, just as real estate concern Vornado (VNO) announced its sale of all its JC Penney stake at $13. Of course the real risk is in the company being unable to get the line it needs. While it does reportedly have nearly $2 billion in cash, no one wants to see starkly stocked shelves heading into the holidays. WHether through covered options or the sale of put options, JC Penney has enough uncertainty built into its future that the premium is enticing if you can accept the uncertainty and the accompanying risk.

Finally, I had shares of MetLife (MET) assigned this past week as it was among a handful of stocks that immediately suffered from the announcement that there would be no near term implementation of the “taper.” The thesis, probably a sound one was that with interest rates not likely to increase at the moment, insurance companies would likely derive less investment related income as the differential between what they earn and what they pay out wouldn’t be increasing.

As that component of the prefect storm is removed one would have to believe that among the beneficiaries would be MetLife.

Traditional Stocks: Caterpillar, MetLife, Microsoft, UnitedHealth Group

Momentum Stocks: JC Penney, Mosaic, YUM Brands

Double Dip Dividend: Cypress Semiconductor (ex-div 9/24), Deere (ex-div 9/26), Dow Chemical (ex-div 9/26)

Premiums Enhanced by Earnings: none

Remember, these are just guidelines for the coming week. The above selections may be become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The over-riding objective is to create a healthy income stream for the week with reduction of trading risk.

Weekend Update – September 8, 2013

Employment Situation Report, Taper, new Yahoo! (YHOO) logo, Syria.

Not a line from a new, less catchy Billy Joel song, but a transition week going from the quietude of summer, which was mostly focused on fundamentals to the event driven and emotional rest of the year when the world seems to be perennially on fire, jumping from crisis to crisis.

In a few days traffic in my part of the country returns back to its normal heinous condition as our nation’s elected officials return from a much deserved 37 day vacation that they were unable to truncate by a few days to address some outstanding issues.

Just to be clear, it’s the electorate that deserved the break, but now they’re back and we can settle into our more normal state of dysfunction, while decreasing our focus on such mundane things as earnings. For the record, I don’t get out onto the roads very much anymore, having given up gainful employment for a life of ticker watching, but it’s not as easy to escape the results of having exercised our democratic rights.

Continue reading “Seems Like Old Times” on Seeking Alpha

 

Weekend Update – September 1, 2013

Behind every “old wives’ tale” there has to be a kernel of truth. That’s part of the basis for it being handed down from one generation to the next.

While I don’t necessarily believe that the souls of dead children reside in toads or frogs, who knows? The Pets.com sock puppet was real enough for people to believe in it for a while. No one got hurt holding onto that belief.

The old saw “Sell in May and go away,” has its origins in a simpler time. Back when The Catskills were the Hamptons and international crises didn’t occur in regular doses. There wasn’t much reason to leave your money in the stock market and watch its value predictably erode under the hot summer sun back in the old days.

Lately, some of those old wives’ tales have lost their luster, but the Summer of 2013 has been pretty much like the old days. With only a bare minimum of economic news and that part of the world that could impact upon our stock market taking a summer break, it has been an idyllic kind of season. In fact, with the market essentially flat from Memorial Day to Labor Day it was an ideal time to sell covered options.

So you would think that Syria could have at least waited just another week until the official end to the summer season, before releasing chemical weapons on its own citizens and crossing that “red line,” that apparently has meaning other than when sunburn begins and ends.

Or does it?

On Monday, Secretary of State John Kerry made it clear where the United States believed that blame lay. He used a kind of passion and emotion that was completely absent during his own Presidential campaign. Had he found that tone back in 2004 he might be among that small cadre of “President Emeritus” members today. On Friday he did more of the same and sought to remove uncertainty from the equation.

Strangely, while Kerry’s initial words and intent earlier in the week seemed to have been very clear, the market, which so often snaps to judgment and had been in abeyance awaiting his delayed presentation, didn’t know what to do for nearly 15 minutes. In fact, there was a slightly positive reaction at first and then someone realized the potentially market adverse meaning of armed intervention.

Finally, someone came to the realization that any form of warfare may not be a market positive. Although selling only lasted a single day, attempts to rally the markets subsequently all faded into the close as a variant on another old saying – “don’t stay long going into the weekend,” seemed to be at play.

That’s especially true during a long weekend and then even more true if it’s a long weekend filled with uncertainty. As it becomes less clear what our response will be, paradoxically that uncertainty has led to some calm. But at some point you can be assured that there will be a chorus of those questioning President Obama’s judgment and subsequent actions and wondering “what would Steve Jobs have done.”

John Kerry helped to somewhat answer that question on Friday afternoon and the market ultimately settled on interpreting the message as being calming, even though the message implied forceful action. What was clear in watching the tape is that algorithms were not in agreement over the meaning of the word “heinous.”

With the market having largely gone higher for the past 20 months the old saying seeking to protect against uncertainty during market closures has been largely ignored during that time.

But now with uncertainty back in the air and the summer season having come to its expected end, it is back to business as usual.

That means that fundamentals, such as the way in which earnings have ruled the market this past summer take a back seat to “events du jour” and the avalanche of economic reports whose relevance is often measured in nano-seconds and readily supplanted by the next bit of information to have its embargo lifted.

This coming week is one of great uncertainty. I made fewer than the usual number of trades last week and if i was the kind that would be prone to expressing regret over some of them, I would do so. I expect to be even more cautious this week, unless there is meaningful clarity introduced into the equation. While wishing for business as usual, that may not be enough for it to become reality.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend and , Momentum categories, with no suitable “PEE” selections this week (see details).

While I currently own more expensive shares of Caterpillar (CAT), I almost always feel as if it’s a good time to add shares. Caterpillar has become everyone’s favorite stock to disparage, reaching its peak with famed short seller Jim Chanos’ presentation at the “Delivering Alpha Conference” a few weeks ago. as long as it continues trading in a $80-$90 range it is a wonderful stock for a covered call writing strategy and it has reliably stayed in that range.

Joy Global (JOY) reported its earnings last week and beat analysts estimates and reaffirmed its 2014 guidance. Nonetheless it was brutalized in the aftermath. Although already owning shares I took the opportunity to sell weekly put options in the belief that the reaction was well overdone.

If the reports of an improving Chinese economy are to be believed, and that may be a real test of faith, then Joy Global stands to do well. Like Caterpillar, it has traded in a reasonably narrow range and is especially attractive in the $48-53 neighborhood.

eBay (EBAY) is simply on sale, closing the week just below the $50 level. With no news to detract from its share price and having traded very well in the $50 -53 range, it’s hard to justify why it fell along with other stocks in the uncertainty that attended the concerns over Syria. It’s certainly hard to draw a straight line from Syria related fears to diminished earnings at eBay.

By the recent measure that I have been using, that is the comparison to the S&P 500 performance since May 21, 2013, the market top that preceded a small post-Ben Bernanke induced correction, eBay has well underperformed the index and may be relatively immune from short term market pressure.

Baxter International (BAX) is one of those stocks that I like to own and am sad to see get assigned away from me. Every job has its negative side and while most of the time I’m happy seeing shares assigned, sometimes when it takes too long for them to return to a reasonable price, I get forlorn. In this case, timing is very serendipitous, because Baxter has fallen in price and goes ex-dividend this week.

Coach (COH) also goes ex-dividend this week and that increases its appeal. At a time when retail has been sending very mixed messages, and at a time when Coach’s position at the luxury end is being questioned as Michael Kors (KORS) is everyone’s new darling, COach is yet another example of a stock that trades very well in a specific range and has been very well suited to covered option portfolios.

In general, I’ve picked the wrong year to be bullish on metals and some of my patience is beginning to wear thin, but I’ve been seeing signs of some stability recently, although once again, the risk of putting too much faith into a Chinese recovery may carry a steep price. BHP Billiton (BHP) is the behemoth that all others bow to and may soon receive the same kind of fear and respect from the potash industry, as it is a prime reason the cartel has lost some of its integrity. BHP Billiton also goes ex-dividend this week and is now about 6% below its recent price spurt higher.

Seagate Technology (STX) isn’t necessarily for the faint of heart. but it is down nearly 20% from its recent high, at a time when there is re-affirmation that the personal computer won’t be disappearing anytime soon. While many of the stocks on my radar screen this week have demonstrated strength within trading ranges, Seagate can’t necessarily lay claim to the same ability and you do have to be mindful of paroxysms of movement which could take shares down to the $32 level.

While Seagate Technology may offer the thrills that some people need and the reward that some people want, Walgreen (WAG) may be a happy compromise. A low beta stock with an option premium that is rewarding enough for most. Although Walgreen has only slightly under-performed the S&P 500 since May 21st, I think it’s a good choice now, given potential immunity from the specific extrinsic issues at hand, particularly if you are under-invested in the healthcare sector.

Another area in which I’m under-invested is in the Finance sector. While it hasn’t under-performed the S&P 500 recently, Bank of New York Mellon (BK) is still about 7% lower in the past 5 weeks and offers a little less of a thrill in ownership than some of my other favorites, JP Morgan Chase (JPM) and Morgan Stanley (MS). Sometimes, it’s alright giving up on the thrills, particularly in return for a competitive option premium and the ability to sleep a bit sounder at night.

Finally, with the excitement about Steve Ballmer finally leaving Microsoft (MSFT) after what seems like an eternity of such calls, the share price has simply returned to a more inviting re-entry levels. In fact, when Ballmer announced his decision to leave the CEO position in 12 months, I did something that I rarely do. I bought back my call options at a loss and then sold shares at the enhanced share price. Occasionally you see a shares appreciation outstrip the appreciation in the in the money premium and opportunities are created to take advantage of the excitement not being reflected in future price expectations.

At the post-Ballmer excitement stage there is still reason to consider share ownership, including the anticipation of another dividend increase and option premiums while awaiting assignment of shares

Traditional Stocks: Bank of New York Mellon, Caterpillar, eBay, Microsoft, Walgreen

Momentum Stocks: Joy Global, Seagate Technology

Double Dip Dividend: Baxter International (ex-div 9/4), BHP Billiton (ex-div 9/4), Coach (ex-div 9/5)

Premiums Enhanced by Earnings: none

Remember, these are just guidelines for the coming week. The above selections may be become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The over-riding objective is to create a healthy income stream for the week with reduction of trading risk.