Some time back I stated that it would be best to cover your positions and anticipated a strong down turn, if not a 10% or more correction, the S & P was at 1120. The close Friday was at 1104.49, so we are 10% down from there. SPY Puts worked well, if you didn't hold overnight and watched them closely. Now we find somewhat of a different situation where, the market range has settled in again and we are seeing more of a 'whip-saw' action or sideways trading ranges. Stock picking is the name of the game, more than ever and trading the broad ETF's, like the SPY is harder than ever.
The market is showing some resilience and many are calling for good 1st quarter earnings, with the next possibility of a correction in the Spring or Summer. I dislike stating anything with such strong assurance, or. Those living in the Northeast, may forget what summer is, and the prognosticators may not be able to take into account all the variables effecting the action of the Tape in March, much less through the summer. More than ever the big money is moving in and out of sectors and using their inherent leverage to make gains, while us individual investors become a 'lagging' indicator ourselves. That can change and will. The market is dynamic and investors need to reevaluate how we trade, when we trade and why, now more than ever.
Sentiment currently does not seem to be indicating continuation of the correction and investors can start doing DD again using fundamentals and technical analysis, AFTER reevaluating their trading successes and failures. Does that mean you won't continue to lose money? Of course not! As always however, it does indicate how well those positions will fare in a down leg and protections against losses should be taken now more than ever. One other important, often overlooked factor is timing. Even when fundamentals and technical analysis look good, you must pick you're entry point and not just buy at the ask. How do you 'evaluate' you trading. That will be the subject of an upcoming article.
I will through out one stock, as an example, that I am watching which is McDermott International (Public, NYSE:MDR). The stock is trading up in the pre-market, following positive news in Barrons. Last week another Barrons story on MYL indicated a good buying opportunity and the stock rose almost 11%. McDermott has good potential for an increase in pps, if not a move similar to MYL. With earnings being reported after the bell, I will take a cautious approach and buy if it dips. Yes, I could lose out if the quarterly is overly positive and 'walks away' from me. If you're anxious to 'get in' try selling some puts. As I stated timing and entry points are more important than ever.
No position currently
Disclosure: No Position
Disclosure: No Position