Three up days in a row. Is
this the bottom? Is the correction over? I sold my SPY
Puts within about 10 minutes of the morning open
convinced the market would move higher. For some answer
I have looked at the various indexes. The S&P is back
above the 200 day average. It only fell below twice and
both times did not close below. The NASDAQ though fell
through the 200 day and it was not until today's big
move that the index recovered. That recovery though
included a rise in RIMM.
The DOW failed to break the 200 day
at all. The fact that the Dow failed to break through
its 200 day EMA is part of the reason I am still
convinced that the bull market is intact and this is a
downturn or correction.
Meanwhile the XLF which looks at the
US financial stocks, is way below the 200 day moving
average and has a long way to go before it recovers to
the 200 day. The TSX (Toronto Stock Exchange) is also
below the 200 day and even with today's move it is still
below the 200 day.
Finally, the US Dollar Index shows
part of the reason for today's big move was the decline
of the US Dollar which for most of the past three years,
has been positive for stocks, while a rise in the US
Dollar is poor for stocks. The fall of the US Dollar
today is tied directly to the believe that the Greek
Parliament will pass the austerity measures through a
vote of confidence in the Greek Government. Overall
investors seem to believe that Greek Crisis will have to
be resolved through austerity measures and a new
infusion of capital. By and large that seems to be the
belief of this analyst with Stratfor Global
Intelligence. He could be right.
So what should an investor make of today's action?
Volume was light as many buyers remain on the sidelines.
For many investors the rally is suspect. They could be
right. Technically the markets in general were oversold.
In Greece the government won its confidence vote. Now
though they need to try to get an austerity package of
almost 112 Billion US$ passed and implement it. My bet
is, this may very well be a bounce, but still it is nice
to see the market stop selling for a bit. Perhaps
instead of a resumption of selling, the market may move
sideways. That would indeed be a nice break from the
selling. The problem with a resumption of an uptrend is,
can the market move higher with all the negative news?
Today housing news came out and it continues to show no
improvement in US Housing. The recovery is now more than
2 years old and yet unemployment is still terrible in
the US. With housing and unemployment so poor, can stock
really move a lot higher?
Meanwhile I see no need to hold my SPY puts for another
day. That is the beauty of the SPY put strategy for my
portfolio. It is a short trade often lasting just a day.
So by closing for a small loss today, I can wait to see
if we can pull higher before buying puts again. If the
market can't move higher, then I can consider SPY Puts
again.
SUMMARY
It is always tough to figure out a bottom against the
possibility of a bounce. That's why I like to raise
cash, continue to sell some puts out of the money on
favorite stocks and wait for a clearer sign. Right now
my guess is a bounce that could last more than a couple
of days. If that ends up being right, then I will be
buying SPY puts again. If though the market can regain
its footing, I have a lot of cash to sell out of the
money puts and I look forward to getting it back
working. Right now though, it is a wait and see
approach.
