The Answer to the Economy

Folks this is easy so I will keep it short.

To stimulate the economy, the Federal Government needs to lower taxes for business and individuals. This will put more money in all pockets, encourage businesses to spend money, and draw some business back into the United States. Simple.

Next, interest rates need to rise gradually soon after the tax cuts. One, to manage growth from the tax cuts so that the economy does not get too heated. Two, to keep inflation low. Third, to strengthen the dollar, which in turn strengthens the economy and will keep commodity prices in check.

Simultaneously, the Federal Government needs to cut spending in a substantial way. First and foremost by repealing the Health Care Disaster.

This is the formula.

It worked in the 80's and it will work now.

2010 Covered Call Wrap-up

OK everybody, I tallied up my covered calls that I sold against stocks on my portfolio for 2010. I started using covered calls to bring in some "added dividend" to stocks I already own.

Are you ready for this????

My take on those contracts was worth 8.9% added to my portfolio for the year 2010. The strategy is to buy stocks that will pay a decent divy 2-6% and that I can sell calls against to pull in between 1/2-1% per month. That should give me a minimum of 8% to up to 18% right off the top BEFORE appreciation of share price. I expect something in the middle, say 13%, which is pretty solid and relatively safe with the stocks I tend to hold.

Now I will nix that real quick when the market indicators that I use tell me to get out as this strategy is part of the "capital appreciation and preservation", appreciate capital in uptrends, preserve capital in downtrends. And yes I will post when that happens and give fair warning before much damage is done to the market and the portfolio.

I will attempt to keep you all posted with my positions and calls sold in 2011.

OK now to the calls I have sold with Jan 20 2011 expiration:
PEP $67.50 Calls
GIS $37.50 Calls
C $5 Calls (I expect these to be exercised unless the market reacts poorly to the Citi earnings report this upcoming week)
I will also sell calls against NLY $18 strike this week for whatever the going price is, I only expect .20/share.

June 2010 Scoreboard

June was an interesting month where I learned a few things about calls and the pitfalls.

I had written covered calls for:
MO $21 strike
WFMI $41 strike
T $25 strike (these were exercised)
PG $62.5 strike
COST $62.5 strike

The market did not agree with me this month and the portfolio took a hit. This month, I am paying more attention to the market action. I do believe that we will head upward from here. I will strategically plan to sell calls on the stocks I own when they reach a higher price and the calls are more attractive for selling.

Covered Call Scoreboard - May 2010

In my fourth month of writing covered calls against the stocks that I own I have been able to grab another 3/4% of income for my portfolio. They have all just expired on midnight Friday.

The covered calls include:
MO $22 strike
T $27 strike
WFMI $40 strike
COST $62.5 strike

For the four months of covered calls that I have written, I have been able to obtain nearly 3% of income for my portfolio. I expect that for the year, I should be able to obtain 10% from covered call positions alone.

February's Results - Covered Calls

In my first month of writing covered calls on stocks that I own I was able to create additional 1% of 'income'.

February's Results
The calls I wrote were all February 2010 expiration and consisted of

MO $21 strike
DD $34 strike
AA $15 strike
GDXJ $25 strike
NLY $18 strike
MGM $12 strike
MGM $13 strike
WFMI $32 strike

The WFMI calls were exercised at $32, it went from my buy price at $30.52 to over $33/sh in two days after Whole Foods reported earnings. I received 2% premium on the calls and 4 1/2% for the stock appreciation, that's 6 1/2% in 4 days!!!!!

This month's strategy with WFMI: I bought some shares today at $33.83 and sold the Mar 20 $36 calls against that position. I received about a percent on that sale, and IF they are exercised I will have made 6% on the stock, so say a 7% return in a month.

My DD calls were exercised at $34. I got a 3% for the premium and I made 8% on the sale of the stock. I got an 11% total return in less than 2 months on DD. I likely will not buy it back for I believe it is fairly valued and the upside is limited. If it drops a few percent I will entertain buying it again, but not until it drops.

This month's strategy with AA: I sold some Mar 20 $14 strike calls on a portion of my position in AA that I recently purchased at $13.25. I received almost 3% on those calls and if these are exercised I will have made 6% on the stock sale. Basically almost 9% in a little over a month. Not bad. If AA continues to go up, I will sell calls on the other 2/3 of the AA position that I own.

This month's strategy with GDXJ: I like Gold, I like GDXJ, I wanted to sell calls that I hoped would not be exercised. I sold Mar 20 $27 strike price calls. I got 1% for the premium on the calls, IF the calls are exercised, I will have made 8% on the stock for a 9% gain. Keep in mind that I made 1% on the Feb 20 $25 strike calls in three days. So for a month and a half I would make 10% on GDXJ and the call premiums.

I did buy some T at around $25.40 and sold Mar 20 $26 calls and received a 1% premium. I don't expect these to be exercised, but if they are I will get about a 3% win in a month. I am really looking for the dividend at the end of March so I would likely buy it again before the dividend is declared.

My strategy with my NLY position: I want to sell some calls, but I really don't want to sell the Mar 20 $18 calls, heck the stock is at $17.90 and the premium is only 1 1/2%!! I would like to sell some $19 strike price calls but I don't see that happening. I will check out the technical indicators and if it and the market is overbought, I will take a chance on selling the $18 calls.

JC

S+P - Where Are We Going?

If you were a reader of this blog last summer, you would have made a cool 25% in six months. It has been a good run.......but technically, the run appears to be nearing an end for a while.

Technically, we have hit the major resistances at 1150 on the S+P. The market is oversold and looks like the classic rolling-over pattern. See the chart, courtesy of StockCharts.com.

The federal government has not given us the catalyst for further growth, which is not going to happen with this Congress and President. Sadly, with all the unprecedented spending, taxes are going to go up. The Taxman will be coming after your money soon.

If I am wrong and tax increases are not imposed, there still is no catalyst to propel the US economy to any sustainable growth. I believe the likelihood of that is slim. (We need significant, permanent tax cuts to make that happen, the likelihood of this is even slimmer!)

Unfortunately, the next target for the S+P appears to be to about the 1050-1100 range say by mid year. That is a 4-9% drop from here.

If there is some game changing news to alter the course of the direction of the S+P, I will follow up this post with a revised target. Until then, expect a correction and it may happen soon and somewhat quick............then we become range bound until at least May.

Any comments?

More Covered Calls

I have had a decent run up on a small long position in DuPont (DD). It is up 5% in 6 weeks and I figured I would sell at $34 if it hit that target. It went past there and fell back to $34 so here is what I did.

I sold the Feb 10 $34 strike calls for $1.00/contract. Therefore, if they are exercised by the expiration date in February, the profit in this set of transactions is $2.50/sh + $1.00/sh = $3.50/sh.

$3.50 profit per share/$32.50 original cost per share = 10.7% profit in less than 2 months

I will take that any day of the week. If the $34 strike call does not get exercised, I will sell another call for the March 10 expiration. In the meantime I will likely pick up a dividend of another 1%.

Any thoughts?

S+P.....Getting Closer

This is really becoming my very favorite chart. The 50 and 200 day EMA are converging and the S+P is close to breakthrough the 200 day EMA. It looks good watch for the breakthrough. that is when we head to 1200 on the S+P, that is if we continue up say 5% from here.

Chart courtesy of www.stockcharts.com.

Critical Point for S+P 500 Breakout

The S+P 500 index is at a crossroads at this point. This rally from right around 666 up to 900 today is quite impressive and it may be more of what we may see throughout the summer. The momentum is good, money is heading back into mutual funds, and the consumer appears to be coming back.

Let's look at some technical indicators. The chart above (Courtesy of www.StockCharts.com) of the 50 vs. 200 day EMA appears to be converging. In an earlier post I indicated that we could be looking at 10,000 Dow and consequently about 1100 on the S+P 500 index. If the 50 EMA crosses the 200 EMA, folks I think we are really off to the races for the rest of the year. At this point it the crossover would likely be concurrent with an important resistance point at 1000 on the S+P 500.

Crossing the 1000 threshold on the S+P 500 would be a great psychological hurdle, couple that with the 50/200 EMA crossover and we could be off up to 1200+ by summer's end. That would be almost a double from the bottom.

I also follow a great blog called "The Wall Street Bully" written by Ulli G Niemann, the site is http://thewallstreetbully.blogspot.com/ , his buy/sell indicator for domestic ETFs is nearing a crossing point as well. I have found that his buy/sell indicator is real good for timing the market, I urge all to visit the site and see for yourself.

The next four weeks will be quite important for the markets and the direction. My advice, pay attention to the S+P 500 index, pay attention to the American consumer, and do your own due diligence. Happy investing.

10,000 Dow?

Folks, this stock market rally is for real. We keep hurdling over each bump in the road. I foresee a 10,000 Dow within a year. Let's go through the big items affecting the markets and economy one at a time:

Subprime mortgages:
We have seen the worst of the effects of the subprime mortgages. Record number of people have refinanced at historically low rates. People are looking at homes at an accelerated pace.

Consumer spending:
The US consumer is not dead, they have taken a break to pay off debt. Go to any Costco or WalMart store, busy all the time, big ticket totals. This is huge for recovery. The consumer is getting more confident all the time.

Auto Sales:
This too will come back. The Chrysler bankruptcy proceedings will pave the way for the US auto companies to become truly competitive with other auto manufacturers.

Lending freeze up:
Lending is freeing up, more and more, this will help bring back some investment and growth and in turn hiring of the unemployed.

Unemployment:
The first time jobless claims are reversing. This is the real catalyst that will bring the recession to an end.

Inflation fears:
It appears with the unemployment and slack demand, inflation appears to be in check. Also, energies and other commodities will be low for a while until consumer demand for goods increases. If we have a relatively stable recovery with 2-3% growth, the inflation fears will be controlled.

These all point to better sales, profits, along with low inflation. A combination that will be great for stocks. If the US government will slow some of this spending, then I see a 10,000 Dow in less than a year. Happy investing all.