Expect another net down day today. The stock futures were heavily down. Giant insurer AIG is hanging on by its fingernails, and the NY Governor is desperately trying to keep it in business. It may file for bankruptcy protection.

Goldman Sachs’ Q3 profit was off 70%, and it didn’t make its consensus earnings projection (1.81 vs. 1.91). The purpose of this post, by the way, is not to paint a gloomy picture but simply to focus on what is happening.

We need a market swoon back to the DJIA’s 10,600 level or so, which was the bottom of a 2006 correction, before the market can resume its move up. I still think the market will bottom - at least temporarily - and make a new run north at the 200-week moving average.

But we first have to sort out the next few days. I look for the major market indices to fall over the next days or even couple of weeks to the lower trend line of the market’s falling range (see prior posts). We have lots of earnings reports yet to come, the news ain’t gonna be great, and we have to wonder how likely a market surge is while the drip-drip-drip of poor earnings results come in.

I am licking my lips at the prospect of the turnaround about to come. Seriously. Be looking for great companies that have sold off with the market in past weeks, which will come roaring back.

Covered Call Positions
Covered call writers, don’t despair here. See this market move for what it is - an opportunity. If you have been rolling calls down, it may well be possible to roll them down once more. But, I would close them for another profit if the market continues falling, then clear out any short calls. You don’t want to be caught in a low-strike call when the stock comes back (the assignment trap).

Right now is not the time to put on a covered call position. Wait a bit for even better prices. When the market snaps back, buy the stock but don’t sell the calls right away. Leg in, meaning to write the calls later after the stock has run up some.

This entry was posted on Tuesday, September 16th, 2008 at 8:16 am and is filed under Covered Calls, Markets/Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.