Some Random Market Observations

by Wayne Ferbert on September 27th, 2012

Below are some random market observations that interest me – but may or may not interest you.
  • The S&P500 feels ‘exhausted’ in these mid-1400 levels. It doesn’t seem like it is ready to break out in the near term. I still think that $1475 seems like the near-term top for the S&P. But I think the floor seems closer to 1300. So, being nearer to the top than the bottom, it might be time to look to take some profit in any idiosyncratic investments you might have made. Look to harvest some gains!

  • One investment that I have no profits to take: Hewlett Packard (HPQ). It seems like this company is the ultimate value trap. It just keeps spiraling downward. Luckily, since we bought it using the Buy & Hedge approach, our losses stopped long ago. Our hedges have kicked in. However, it is testing my mettle when it comes to the willingness to ‘re-invest’ the hedge profits back in to more shares of the stock. We are doing it – but I take a deep breath every time I do.

  • I was looking at Morningstar’s fair value assessment on all 9 of the SPDR sector ETFs. In general, Morningstar tends to believe the overall market is close to its top also as the average price to fair value across all 9 sectors was 0.95. So, that means the market has only about 5% of room left to run according to Morningstar. But the only two sectors that had a price to fair value below 0.90 were Energy and Financials, at 0.89 and 0.86, respectively. These are two of the sectors (along with Technology) that we continue to like in our sector rotation strategy.

  • If you saw my post from last week, I sold $20 October puts on FaceBook (FB) – which then proceeded to drop dramatically on a Barron’s downgrade. I may end up owning these shares sooner than expected. But that was the discipline – let’s get forced to own a stock at a significant discount from where it was already trading because it is a value at that price. I just didn’t expect it to happen in the first month! I thought I might sell these puts for a few months first. They are still out of the money – but we are watching closely.

  • Apple (AAPL) has pulled back a little here – and many pundits are calling it a buying opportunity. I love Apple products and I think they have great long term potential – but I think a $25 pull backs on a $700 stock is not enough. If it re-traces to $600, wake me up! In fact, makes me wonder what the December $600 puts are trading at? Might be a chance to sell some puts to force a buying transaction in the event of a pull back.

  • And in a bit of news that won’t shock anyone, the government reported more economic misery this morning. Prior GDP growth was revised downward to 1.3% from 1.7%. These are very weak levels – and getting weaker every quarter. In addition, durable goods orders dropped also. These are just continued weak signals in a weak economy. No wonder the S&P 500 seems to be feeling resistance in this mid-$1400 range.

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