Time to watch and wait as the market climbs along with risks

I started commuting into work a bit this week, driving in Wednesday and Thursday.  This has tended to make my trading and thoughts on it a bit more erratic, for better or for worse, as I spend more time on the road (it’s a 90 minute drive with no traffic) and less time looking at my favorite sources of market insights.

Here’s a glance of my main holdings:


A few changes this week … I bought some MO earlier, deciding I needed a quick win as gold miners declined and IWM went up.  Figured I’d sell in-the-money June puts and collect a couple payments of the 8% dividend yield.  So I bought around $41 and change, sold $40 June calls for around $2.65/share, and bought the calls back for $0.35 after the stock dropped considerably.  Now I’m down a bit on it, and I haven’t quite figured how to play it from here.

Also, I sold off some of my IWM puts on Thursday – particularly the Jan 2022 ones because I could sell them for a solid gain.  The saying is that bull markets climb a wall of worry, and there’s a significant amount of truth to that.  In the upside-down world of US equities, stocks often climb on bad news and then sell off on good (buy the rumor, sell the news behavior).  Friday didn’t fail to disappoint there as stocks rallied strongly on the US unemployment numbers.

Note that there are technical reasons why stock rally on bad news.  Part if it is that traders figure that a short-term bad news hit will give an opportunity to buy and sell later for a gain as news improves.  Possibly a bigger reason is that numbers like this point to market-positive reactions from both the federal reserve and the federal government.

I’ll probably buy those IWM puts back if it moves to re-test the Apr 29 peak.  I still expect the market to turn down at some point – particularly as the federal reserve slows its balance sheet expansion rate.

One thing I should’ve known shifted my views on how this will play out though … I thought that the fed booster to unemployment was $600/month not $600/week.  Back in the last recession, my unemployment was $1700/mo and I thought that even with $600 added to that it would be a stretch for rent levels in big cities like Los Angeles.  Now I realize that that people at the low-end of the wage spectrum are getting $3000/month or more – so I highly doubt apartment renters will stop making their payments.  This is not a time when anyone wants to invite housing insecurity – and with lockdowns easing, evictions won’t be off the table for long.  I was relieved to note that the two property trusts I do  have puts in – FCPT and SPG – both focus on the retail/restaurant space, but this level of support for the unemployed should help blunt the effects of the lockdown-induced job losses considerably.

Anyway, its probably a good time to have more cash on the table.  It’s just hard to tell a number of things … when will smaller stocks break as implied by some economic measures, or will the federal reserve jump in big if a downward movement shows itself.  I’ve decided that my time horizon has to be a few weeks to a few months, as I can’t blindly sit on losses for month after month expecting a big move that may never come.  The stock market can be a gamble or it can be a mitigated risk, and I need to focus on the latter rather than expecting that hard-nosed thinking and luck will see me through this market.

Anyway, I’ll be watching carefully as I expect US stocks to climb over the next couple weeks while the risk of a downward correction also rises.  There is certainly significant rotation into the stronger players in this environment – particularly sectors seen to benefit from the unraveling trends such as tech and gold miners. Time to watch and wait I suppose.


About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at gluskinsheff.com. Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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