After two big up and down days to end the week I was anxious to read Barron’s views. I always read the Market Week section first for some reason. Kopin Tan had me turning into a big bull to start my Saturday off right. He said:
“…corporate profits were up 8.5% in the first quarter, well above the 3.6% pace Wall Street analysts had forecast. Commodity prices kept climbing. Consumers sending grew about 4% the past two quarter, and weekly unemployment claims declined for a fourth straight week, to under 300,000 – all signs of a still-healthy economy that emboldened the bulls.”
I was pumped and getting ready to throw caution to the wind until I read the front section kicked off by Alan Abelson. He reminded us of some key points we shouldn’t forget:
“…the Dow was up 26 of the last 31 sessions, had gained a cool 7% so far this year and set 21 new all-time highs!” We knew that part, but we bulls try to block it out. He continued, “…this bullet train has been barreling up the mountain powered by nothing more tangible than pure emotion”.
Who’s right? How can both be right? I hesitate to say it’s a stock pickers market, because isn’t it always? I think the sectors are becoming more important than they have in a couple of years. The reality that China will slow sometime this year has to start weighing in on our metal companies as Abelson points out. Healthcare has a fighting chance, but most analysts already say that and are most likely invested where they think they should be.
This bull is going to have to stop for a breather soon. The best defense in my eyes is to stay diversified and stick with the lower p/e companies for while. They typically have lower to fall when earnings forecasts start to ease. I love a good growth company and a good story to go with it, but once this bull slows, I don’t see many of the big boys paying the higher multiples and caring about what could be. It’ll move defensive quickly.
All of this leads me back to my normal stance. Writing puts is the only way for me to work this market. I’m going to continue to sell out-of-the-money to give myself a little cushion. After subtracting the option premium from my cost of shares I should be sitting somewhere close to the price the dip takes us. You never know, I might luck into another AAPL where the stock is assigned on a Friday and it pops up on a Monday before I can cover it with a call.