The Results are in for the year: both the overall DITM (Deep-In-The-Money covered call option) strategy and 1 of the pure-play IRA accounts using it returned 20% annualized , thanks to a huge Bull rally,although the strategy is supposed to be market neutral.
What was thought to be, an in my opinion is, a plan lower in risk than an Index fund or stock portfolio, REIT or high-yield security plan, has surprised both in the number of stocks "called away" by the lower strike call, and by the performance of early exercise. The lower risk is due to the "cushion" or safety net of the call.
For those of you not familiar with Covered Calls, and are interested in them. please see this definition:
For anyone who has some knowledge of trading options, but would like guidance in placing money market alternative assets in the strategy, I am starting a fee-based service next week which will suggest Buy/Write trades on higher dividend stocks and the optimal call to sell, as well as monitoring them in case of a severe decline ar early call-away. I can be reached at :
leonbrnt@aol.com for further information.
The good news is that for 40 weeks in a row, mutual funds have seen inflows; the bad news, for the stock market, is that almost all has gone into bond funds, mostly Treasury.
Also last week, bond funds took In $10B, up from $4.15B the prior week, and MMFs reversed the Outflow trend, taking in $2.59B last week - even though yielding less than 1%, before state and federal taxes, Inflation and a weaker dollar. Money Market Funds now total $3.27T, per the ICI.
From a Long Term perspective, a chart on my wall dating back to 1789 shows that, although the sampling is small (under the 30 tests a technician would like to see), the previous Black Swandives came in 2-lots, and we've had the second one of the decade in '07&'08. Previous doubles were 1841 & '57, 1929 & '42, and 1970 & '74.
From an Intermediate perspective, the above mutual fund numbers suggest that the late adopters in the Gaussian Bell Curve have not participated in the rally driven by early adopters - floor traders, hedgers, smarter institutional black boxes, et.al.
Although breadth has been strong lately, including Adv./Dec., the McClellan Oscillator (ratio-adjusted) has called short term tops accurately going back to July 1, within a week of the top: July 1 and 24, Aug.1 and 20, Sept.15 and Oct.16, Nov. 15, and Dec. 2 and 16. That is 9 of 9 YTD. The level is now toppy at 60!
Several Sentiment Indicators seem to have taken the week off, such as Inv.Intell. and Baltic Dry Index, as they are suspiciously exactly the same wk/wk. The Nova/Ursa did rise a bit to .67, but well off its highs.
Now that 2009 is almost over, the question in everyone's mind is whether the huge Bull rally is also over, since money managers - approx. 70% of market Volume - had to show they were in this market. Looking at the 9 Selling Tests of the much-followed Wyckoff system, I had to answer NO! After divining a Pt.& Fig. target on the SPX of @1220, based on the Cause & Effect of the Spring consolidation. This is also the predicted level of many wise pundits, including ones I follow. Only Steve Leuthold has recanted so far that he overestimated and looks for a correction, possibly in January, or at least the 2nd half of 2010. PNF charts do not give Time targets.
Here are the Wyckoff Selling Tests:
1) Target has not been reached
2) There is some Volume confirmation of weakness on Up moves, but no-
3) Buying Climax, or heavy Volume blowoff
4) RS, or Relative Strength is not an issue here, since it IS the market
5) The rising bottoms Trendline has not been violated
6&7) Lower highs and lower lows have not been observed in this sideways consolidation since mid-October or mid-November.
8) A Crown top may be forming, but it seems early on - possibly a UTAD (upthrust after Distribution) is currently ongoing.
9) Finally, a 3:1 P/L ratio is not an issue here.
Sentiment table:
|
| MktSentiment | Last Week
| Prev. Week | 5 Year HI | 5 Year LOW |
| DJIA: | 10520
| 10328
| 14093
| 6626
|
Nasdaq:
| 2285
| 2211
| 2805
| 1114
|
S&P 500:
| 1126
| 1102
| 1561
| 683
|
| CBOE Eq. put/call: | 58
| 66
| 96-10/08
| 46-1/03
|
VIX:
| 19.5
| 21.7
| 90
| 8.8
|
| McClellan Osc: | 59
| 7
| 108
| -100
|
McClellan Sum:
| 757
| 596
| 1568
| -1514
|
Newsletter Surveys
|
|
|
|
|
| InvestorsIntel.Bull:
| 52.2
| 52.2
| 63
| 22.21
|
| InvestorsIntel.Bear:
| 16.7
| 16.7
| 54.4
| 16
|
| AAII Bull:
| 37.7
| 42.1
| n/a | n/a |
| AAII Bear:
| 37.7
| 28.4
| n/a
| n/a |
Nova/Ursa Mutual Funds:
| 0.67
| 0.56
| 2.2
| 0.56
|
Mutual Fund Flows:1 week delay
| n/a
| -1.2B
|
|
|
Money Market Flows
| 2.59B
| -.5B |
|
|
ETF equity:Monthly Totals
| Nov.738B
| Oct.591B
|
|
|
| Baltic Dry Index: | 3258
| 3258
| 11700
| 663
|
| Bullish %:
| 77
| 75buy
| 88
| 2
|
Insider Corporate Sellers:
| 28:1
| 28:1
| 108:1
| 2.4:1
|
With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding.
For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance
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