For Monday I had expected a sideways day with a slight up bias while the market direction continued to consolidate the recent gains. Today the withdrawal of Larry Summers as a possible chairman candidate for the Federal Reserve gave stocks an enormous lift. This is because Summers is seen as too hawkish and the stock market is hoping for a candidate who will be more accommodative to current Fed policies that continue to provide liquidity to stocks. Other stories that hit the wire this morning include Packaging Corp of America (PKG) acquiring its rival Boise Inc for about $1.28 billion.
This makes PKG Stock the world leader in corrugated container products and makes it a more difficult target for others to acquire. I did a trade this morning in PKG Stock which marks its first entry into my portfolio. Here is the PKG Stock trade alert.
Twitter News
Saudi billionaire Prince Alwaleed bin Talal says he will not sell any of his shares in microblogging site Twitter Inc when it goes public, and expects the firm’s IPO to hit the market later this year or in early 2014. There is a lot of interest in this IPO but again I rarely pick up this kind of stock at its IPO. The only stock over the past 7 years I have picked up at its IPO was VISA stock (V) as I felt it was terribly undervalued. I am still holding my shares of Visa Stock.
Apple Stock This Morning Continues To Fall
Apple Stock is disappointing this morning as it continued to fall and easily broke solid support at $465. I bought my puts back on the push back up around 9:39 and then sold the next set just after 11:00 AM. I could be too early with the next set but if so I will continue to roll down. Support in Apple Stock continues to soften at the $465 level broke today. Hopefully the stock won’t break much longer support around the $390.00 to $395 valuation. This must be disheartening to Mr. Icahn who has done just about everything to get this stock up.
Market Direction and Why Put Selling Works
You can see from my market direction comments that while I had expected a somewhat sideways day, any number of events can impact stocks. Once investors realize that trading stocks is an “emotional roller coaster”, you can begin to see the value of Put Selling.
It is very difficult to judge just where a stock is heading. Many people think ETFs are the solution as they are a basket of stocks. The belief is that this basket of stocks protects investors from the handful of “bad” stocks that may fall while the other stocks may continue to rise. In effect though ETFs generally do not provide the same returns as a handful of well performing stocks. I realize that figuring out which handful of stocks are the “right ones” is the most difficult part, but for many investors, Put Selling assists in providing an income while protecting their capital from the “bad” stocks.
The market direction today shows how a single event can impact stocks up or down. Yet Put Selling affords investors the opportunity to select large cap stocks that are leaders in their field and enjoy significant returns “despite” what the market direction may decide to do for the moment.
PKG Stock
Three examples come to mind immediately. This morning I sold puts on PKG Stock for the first time. This is because Packaging Corp of America has over the past several years continued to grow its market share and subsequently its revenue. While the stock chart looks strong for PKG Stock anything can impact a stock. But with the acquisition of its chief rival Boise,, PKG becomes the world leader in its field. Therefore even if the stock is impacted by an event the likelihood of a recovery is much greater making this a stock worth considering for Put Selling.
Johnson and Johnson Stock
A second example is Johnson and Johnson Stock. Here is another mammoth corporation that is a world leader in its field. Recently news of a possible legal settlement in the way of perhaps three billion dollars dropped JNJ Stock and may have broke its recent uptrend. But I didn’t do anything except sell more puts because again this company has a history of revenue growth and just as important market share dominance. Until that dominance begins to erode I will continue Put Selling JNJ Stock. The stock has already recovered much of the recent loss.
Intel Stock
A third example is Intel Stock (INTC) which has been in and out of favor for literally decades. Yet Intel Corporation is the dominant chip-maker in the world today. Their dominance stretches into almost every aspect of our technological lives. But for many investors who look at the chart of Intel Stock over the past 10 years they see a company that has not provided growth for stock holders. They are though missing the real story behind Intel Stock for those of us who invest “outside the box” as it were. Intel has grown its dividend 1025% over the past 10 years. This works out to a dividend growth of slightly more than 10% a year. An investor who bought the stock at $27.27 on Sept 22 2003 would have already received $5.41 in dividend payouts. But for those of us who like to sell puts against Intel we have earned better than 12% a year each and every year. In my portfolio in 2010 I earned 17% on Intel Stock, 18% in 2011, 11% in 2012 and to date 15% in 2013. This averages out to 15.25% a year. Part of the reason stocks like Intel shine for put sellers is because they have value, hold their value and tend to trade in a range making the likelihood of a large capital loss less likely. This provides the backbone for Put Selling, earning income monthly while having a reasonably good level of safety while trading within the stock itself.
Put Selling Just Makes Sense
Today’s market direction shows that judging market direction is difficult simply due to all the events that are unknown. Just two weeks ago it was Syria which drove the market direction lower. Today it is the news of a Fed candidate withdrawing that has the market in an upswing. The emotional roller coaster of investing can be slowed a great deal through Put Selling and studying trading patterns of stocks. My article this weekend on Nucor Stock explained this in detail. Through staying with sound strategies that offer both profit and repair an investor can remain cautiously invested in large cap dividend paying stocks that are leaders in their respective fields and earn above average returns year after year and smooth out the roller coaster ride that is stock investing.
Market Direction Outlook Intraday for Sept 16 2013
Today’s move higher is probably overdone. I will not be surprised to see the markets not close on the highs today and that could be the clue for tomorrow. There is still the Fed announcement for tomorrow to contend with but if the scaling back of Quantitative Easing is delayed even by a month investors will probably push the markets higher still. Meanwhile though it is nice to see the S&P continue to clear hurdles and hold the attention of investors. I will look at the rate of change at the close to see what it tells us as far as new capital being placed at risk. I do think though the market direction will consolidate at some point shortly and that will give us a better clue as to market direction heading into the end of the month of September.
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