Not looking so good
November 19th, 2009 by John BrasherI didn’t like the looks of this market top yesterday and closed my remaining open position in Philip Morris (PM), for a 1.5% profit, better than a sharp stick in the eye. I’m at a 3.5% return on covered call trades for the month, not great but not bad.
The market has risen in its trading range since early November, rather sluggishly except for a couple of large candles, and may have topped out. I will be on the road to Tampa this afternoon when the market closes, and may not have a chance to blog further on the subject today.
The market has sold off this morning, although it rose steadily on a 5-minute chart from 11:00 to 12:30 ET, and now is tipping over again as I write this. The Dow Jones Industrials daily chart below shows how the market has been ranging. The red rectangles illustrate how the market has tended to congest at the top of the trading range:
But maybe not this time. If I had positions open, I would probably see how today goes and make a decision tomorrow. If today closes positive, that is a good sign for a little longer stay at the top of the range. If it closes down but not by much, that also is good, because the bears couldn’t keep the pressure on. If the market is close to the low later in the trading day, it might make sense to exit, but then tomorrow might be an up day, which is why I usually wait for confirmation.
If the market closes close to the low and opens weak tomorrow, I would get out, and look for a re-entry once support is reached within a couple of weeks, which will lower cost basis and set up a really nice profit. This works best with top-quality stocks, however.
Boy, this up-cycle in the range didn’t take long to unfold, and one reason is that the range is narrowing. Those who wrote ITM calls in early November are of course in much better shape, which is one reason they write them!
November 19th, 2009 at 2:49 pm
Hey John. I’ve been checking out your website and service for a while now and have been really impressed with your market knowledge, especially in terms of covered call writing. I’ve read your free PDF on Covered Call Writing and was equally impressed. My personal trading strategy is two fold, to both trade the stock(options) and accumulate stock and sell covered calls on it. I don’t profess to be super trader, but I do have my fair share of knowledge in standard chart reading as well in volume spread analysis. Essentially I just wanted to say your blog commentary on the market and covered call writing is some of the best I’ve seen. A lot of what I read on your blog follows what I’m seeing with my charts and analysis. Keep up the great work.