Today's action in my opinion definitely
indicated any bounce has to be sold
If the market climbs in the next day or
two I will be buying puts. If the market
climbs this fall, I will be buying puts.
With today's market action, the bears
now have the upper hand. The charts
below show the market now in peril of
moving even lower.
The NASDAQ which lead the market since March 2009,
holds the only hope for the markets. It has not
broken the 200 day moving average and is doing its
best to hold onto to some semblance of bullishness.
However the other charts are not very positive.
The S&P 500 easily touched the 200 day moving
average. Next stop is only 3.3% lower which marks
the March 2011 low of 1249.00.
If the March Low of 1249 breaks than
the next stop will be another 10% lower at 1175.00.
The first collapse of stocks from the May high to
1249 marks just an 8.8% retrenchment. But a move to
1175.00 would mark a pullback of almost 19%, which
would be a fairly severe correction and more in line
with the correction last year before QE2 stepped in
and turned the market around. The chance of QE3 is
probably limited particularly with the new
"austerity measures" introduced today. As well even
if introduced I believe QE3 will be too little and
too late. Unemployment comes out this Friday and
could mark another blow to the markets.
The July 18 2011 XLF low was $14.46.
Today the XLF reached $14.62. From its high of
$17.20 on Feb 18 2011, the XLF has fallen 15%. With
no real outlook that would point to a recovery in
financials, the stock market is going to have a very
MARKET CALL SUMMARY - BEAR RETURNS
In my opinion the bull market is
over and the bear market is beginning. This doesn't
mean stock prices will collapse, but it does mean
that the strategy of selling puts has to be
carefully implemented unless you want to be assigned
stocks at what could end up being higher levels.
I will write an article shortly on
selling naked calls which is a much better strategy
when the markets are in a downtrend.
I will be purchasing SPY puts on any
bounce higher. Meanwhile for my positions that have
covered calls, I will be taking opportunities in any
rise in stock values to sell calls in the money as I
am sure that many of the covered calls once sold in
the money, will eventually end up out of the money
as stocks pull lower.
Bear markets are a different type of
beast. They have sideways actions, big bounces and
bigger sells. The bear market of the 1970's lasted
almost the entire decade. It was a great time for
option premiums. The bear of 2000 to 2003 and 2007
to 2009 were pretty severe with losses of more than
50%. The chance of this bear market seeing such
collapses is probably as great as any previous ones.
Just remember that bear markets take months to
unfold and normally collapse near the end. Inbetween
there are lots of opportunities to make profits.
There is no need to fear a bear market, but it is
worthwhile implementing different strategies and
remaining conscious of the fact that the bull market
is probably ending.