That old 10,000
October 14th, 2009 by John BrasherWe just had a CallWriter members’ trading lab conference last night and I talked (among other things) about how the market needs to break conclusively above 10,000 in order to keep the 2009 uptrend intact. Well, the DOW’s close at 10,015 today was a good start, because the even-thousand numbers are very important, whether the index is northbound or southbound.
In fact, the DOW closed just 10 points south of the day’s high today. Very nice, but we need to see more of this action. One close above resistance doth not a continuation make. The daily chart below indicates how the index stuttered at the 9,830 resistance level yesterday and Monday, then made a strong upmove for a close above resistance today.
The weekly chart below shows the strong 2009 trend since early March. It took about 3.5 months to get the June/July correction. At some point we can expect another correction of equal or greater magnitude, though the recent pullback should have bled off some steam. Notice also how the upper and lower trend lines are converging toward each other,
The same thing is of course happening with the SPX and NDX.
I intend to give the market a day or two - at least - of time to consolidate before writing any calls, since I like to write with the market. We may see some irrational exuberance now, but many don’t believe the DOW can stick above resistance. There may be a little more stuttering before the market moves up, assuming it can live in the above-10,000 stratosphere.
My plan upon confirmation of the break in resistance will be to pick strong stocks off CallWriter’s Global Select list that are following the market (or even stronger) and write OTM calls. This allows a very profitable close early - if the stock moves up as expected - due to the OTM call’s low delta.
October 20th, 2009 at 1:45 pm
John,
I assume that if you are using super puts with the covered calls that you would still keep positions on. Please clarify. Thanks.
Andrew
November 3rd, 2009 at 8:21 am
Not necessarily. If the stock looks to decline further, I will close the CC end of the position and keep the put. If the stock in fact declines, I may at some point sell the now-more-valuable put for a profit. Or, if I feel the stock has found support, I will roll the put down (small profit) and get back into the stock at a lower price (lowers basis) and ride the stock back up.
If I wrote a great stock, then it wasn’t a bad trade, just bad timing. These simple kinds of adjustments are far more reliable than adding puts and calls at every turn of the stock - which also adds complication and new risk zones.
JB