Market Update 5-24-16

We had some good numbers in the housing market data that helped to drive the S&P and other indexes higher today.  If you had the guts to be bullish at the end of yesterday's trading you did great today.  I thought about it but held back because of my bias to the downside. 

I sold some calls in the SPY this morning because of my overall bearish position.  We'll see what happens tomorrow but I think we are very overbought at these levels and I'm looking for the S&P to go back to at least 205.

Volatility is Great For Profits

I've been paper trading over the past few days just to keep active (I was stacking my investing funds into the preferred stock PFF for safe keeping while I figured out a plan).

Here are my results:

Granted if I was using real money I would have used spreads instead of naked transactions and made about half, but over the past few days I've made over $5,000 in paper money trading the volatility in the market.

I stuck to trading the SPY exchange traded fund because it's what the market is beta-weighted to anyway.  If the S&P goes up most stocks with solid balance sheets and good earnings will go up and vice versa.  

My approach was to wait for a pullback to around 204 or a jump in price to around 206. When the price went up I would sell call options and if I was in my position too early (meaning the stock continued to rise) I would buy put options to increase my bias to the downside (negative Deltas).

When the price would go down I would liquidate my positions when I made 50% profit or more and begin selling put options.  Again, if I was too early I would buy call options to increase my bias to the upside (positive Deltas).

Current Trading Plan 5-21-16

There's a fight going on right now between the bulls and the bears.  No one is going to win in the short term because there is not enough market data or any world events to say the market is going to go down.  On the other side, there is not enough data to say that it will go up. 

The middle and lower class are not making enough money to sustain retail earnings and the banks aren't lending like before allowing them to buy things on credit.  The engine of the economy has stalled and the only thing to restart it is to increase wages for all workers and to open lending opportunities for lower income earners.

As for the short-term market direction, after the big drop we had this week we have recovered already and it will probably make it to 206 on the S&P. However because of the tension in the market and the trigger happy bulls and bears when we reach around 206 the market will be smacked back down to around 203. 

As most people know the market climbs slowly but falls down fast.  Generally, I'm bearish because we are overbought at these levels. If there is a big swing to the upside I'll sell calls and buy puts.  Conversely, after a big swing to the downside I'll sell puts and buy calls. 

Current Trading and Investing Plan 3-14-16

As the saying goes..."Buy Low and Sell High."  We are at all-time highs in the market so basic common sense would tell you to sell.  You. of course, want to look at the context of the market but all things being equal it would make basic sense to be on the sell side of the market at this point.  

The best way to get in at this point for traders would be to sell calls and/or buy puts.  I wouldn't use iron condors at this point because of the potential of the market to go down quickly.  

For longer term investors who are in a dollar-cost averaging strategy, I would hold off buying anymore shares until the market dips some more.  If you just have to buy and can't stop yourself, only buy small lots but make sure they are dividend paying stocks.

Current Strategies For Today's U.S. Stock Market

The current U.S. market conditions will remain volatile until there is a longer trend of higher wages, consistent job growth, low rates and low inflation.  Outside effects of China and other world markets will have little effect on U.S. based companies.  Low oil prices will also have little effect on U.S. based companies, if anything they will help bolster them. 

If you are investing long term continue to buy dips in the market using the dollar cost average strategy.  If you are day-trading options set your iron condors wide because the jumps may be large. The range on the SPY should be between 180 and 200.  Or you can sell bull puts and bull put spreads when the market goes down to capture the higher implied volatility prices.    

There is an article in Marketwatch showing the growth in jobs and wages so we are headed in the right direction but it will take some consistency to create a foundation for the volatility we are experiencing.  The middle class is the engine of our economy and if there is no fuel in the tank we can't go anywhere.

Marketwatch Article

ETF's for Dividend Income

Instead of exposing yourself to individual stock risk trying to get high dividend yields, try a dividend ETF. Here is a good list of some dividend ETFs that can provide cash flow income:

Preferred Stock ETFs for Attractive Yields

http://finance.yahoo.com/news/preferred-stock-etfs-attractive-yields-143033023.html

Another great list is here:

Best Dividend ETFs

http://www.dividend.com/dividend-etfs/

Some of the common ones mentioned are:

PFF - the iShares U.S. Preferred Stock ETF it has a 6.05% 12-month yield

PGX - the PowerShares Preferred Portfolio it has a 5.94% 12-month yield

Market Correction

The large market move downward is in my opinion a scared reaction to China's market instability.  China and the US market have been going up steadily for years now and at some point the market was going to stall.  The current market valuations are pretty pricey and there isn't any real reason for many stocks to go any higher based on global market conditions and with China's market going through some issues.

In the days ahead I think the market is going to continue to be volatile moving down and up as people try to figure out what prices should be.  The market is more than likely not going to go any higher until there is favorable news about China or the Fed's decision about interest rates.  I personally think that the SPY (the benchmark for many investors) is going to stay between 185 and 205 until the next earnings come out.