Saturday, June 01, 2013

Chart review 6/1/13

I often do a weekend chart review of the S&P 100 stocks, looking for interesting charts. The volatile market motivates me to do it this morning. I believe this is the first time I have posted on the topic.

Here is a list of tickers that I find interesting for my favorite strategy of selling out of the money puts:
APC Anardarko Petroluem
CL  Colgate 
COST Costco
CVS drug store
DIS Disney
NKE Nike 
NSC Norfolk Southern railroad
PG  Proctor & Gamble
XOP Oil Exploration ETF

VT, world total stock market is at the 50-day moving average with a bullish chart formation. Many big name "safe" stocks such as CL, MCD show a free fall. Yield oriented stocks such as TIP, XLU, HYG, JNK are also in sharp decline. 

Is it time to shift gears? The U.S. market still had a gain for the month of May, so the bears may have had a good hour, but are still hurting overall. Gold GLD and bonds TLT are not giving a clear chart signal.

One theory of mine, is that some hedge funds sold the stock market in the last hour on Friday so that their May end of month report would look better. Most U.S. hedge funds have lagged the gains of the U.S. stock market for calendar 2013. An hour burst of selling makes their statements look that much better in comparison. If this theory has some truth, then there will be a snap back, and the selling flurry was window dressing.

As always, no one knows why, or the future. Humans look for explanations, when it is often just relatively normal market action. I often write about a three-strikes and out, for topping behavior. Friday's sell off can count as strike two. The decline eats into my buying power, so while I am conservatively positioned, I have deployed a good deal of capital on my so-called worm trades. Worms, in terms of the fishing analogy of catching big fish, medium or small fish. The option market premiums have been so slim that I have been digging for worms. It remains to be seen if the worms will be my undoing. The odds are still heavily on my side.

The other cliche that comes to mind is "never short a dull market." Well, this market isn't dull any more. Predictions tend to be more about entertainment than profits. I'll let the market tell me which way the wind blows. At the start of 2013, I thought it would it be a down year for the stock market. WRONG. However, I quickly adapted to the reality and did not allow my prediction to get in my way.

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