12/16 Watchlist

Today it is 30 days before expiration of the January options, which means we're into prime time for covered calls. I'll be taking at look today and in subsequent Watchlists at high-volume stocks priced below $20 showing signals that might make them good covered call candidates. See the end of this posting.

A covered call stock needs to meet these criteria:

• Slightly bullish to neutral prospects. I.e., I don't want the shares to come crashing down, but I also don't want them to have huge rise.
• Price sufficiently low so that I can afford 100 shares. Calls come in 100-share units, so there's no way to sell a call against fewer than 100 shares.
• Volume sufficient to provide liquidity. Basically, the higher the better, but not below 1 million shares.

 Indicators:

USO is showing a bull signal on a 2.6 percent rise followed by a partial pullback. The trend has been sideways since June. Otherwise, no new indicator signals.

No new signals from the currency pairs or my holdings.

High-volume stocks and etfs priced at 20 or greater:

• CVS, bear signal, sideways trend since a huge gap down in November
• KR, bull, sideways since a huge gap down on Dec. 8
• BRCM, bull on a 4% rise, up since November
• EBAY, bull, down since September
• CIT, bear, unknown trend after five trading days since shares resumed trading
• ESRX, bear on a 4.7% fall, up since March; shares are trading where they were on Nov. 30, so it's not as apocalypic as it might sound.
• MHS, bear on 4.6% fall, up since March
• BBD, bear, up since March
• BA, bear, up since March (with some fairly deep pullbacks)
  

ESRX and MHS fell on news reports that healthcare would face increased regulation under Obama's policies. Duh.

The bear signals on those two issues are counter-trend, but I shall look hard at them at the next bull signal.

BRCM's with-the-trend bull signal pushes prices to upside resistance, the second test of those levels in the past four days. A possible trade if it breaks above 32.


High-volume shares and etfs below $20 that are possible covered-call candidates:

• GE, 15.71, bear mode, sideways since October,
• EWJ, 10.03, bull, sideways since September (with deep pullbacks)
• EWT, 12.40, bear, sideways since August
• LVS, 15.88, bull yesterday, sideways since July

All of these have 200-day moving averages that are turning up. GE has a 0.39 premium on the January 16 strike calls, and LVS a 1.09 premium on the 16-strike. Of the two, I would go for the premium and sell a covered call against LVS.

12/8 Watchlist

I've found one possibly decent trade, and that one ambiguous, after scanning all etfs and stocks with volume of 5,000,000 and up for pps signals, status of mfi confirmation by direction, and the trend.

The one possibility is AET, which showing a bull pps signal, confirmed by the direction of the mfi. True, the stock has been in a sideways trend since March, but the bull signal is coming at the top of a fluctuation cycle that has been running about a month measured peak to peak.

AET is not yet quit at resistance, and I want to see what happens. If the price breaks above 31.25, then it might be a trade a for me.

Here's the reject list, showing pps signals with status of mfi confirmation by direction and trend:

• SPY, bear, confirmed, sideways
• EEM, bear, unconfirmed, sideways
• MSFT, bear, confirmed, counter-up-trend retracement
  
• ORCL,  bear, confirmed, sideways
• MRK, bear, confirmed, counter-up-trend retracement
• HD, bear, unconfirmed, sideways
• XLI, bear, confirmed, sideways
• ITUB, bear, unconfirmed, counter-up-trend retracement
• DIA, bear, confirmed, counter-up-trend retracement
• PG, bear, confirmed, counter-up-trend retracement
• XLP, bear, confirmed, counter-up-trend retracement
• VWO, bear, unconfirmed, counter-up-trend retracement
• TWX, bear, unconfirmed, counter-up-trend retracement on news
• BBD, bear, confirmed, counter-up-trend retracement
• XLK, bear, confirmed, counter-up-trend retracement

I've rejected the sideways trenders (except AET, as described above) because they tend to be too short term for my purposes. My ideal options position will be short (i.e., I sold the options)  and will last for 30 days and trend in my direction, giving me a bump from both the price rise and theta decay.


I also rejected the counter-trend retracements, since my present strategy is to trade with the larger trend.

In today's scan, I gave little thought to mfi confirmation. There was just so much not to like that the mfi became irrelevant.

In my holdings:

HPQ has lost the bear signal it showed at the opening this morning and has barely budged during the day. So, no action appears necessary.

X is looking nicely bearish in line with my position.

UNG, at 0.46 above the strike of my 9.00 covered call, is showing a bull signal. For tomorrow I'll do  calculation of when (if) it makes sense to sell the call and retain the shares rather than waiting for exercise.

KO, in bull mode with a sideways price, remains at the top of max profitability of my iron condor.

The indicators -- SPY, VIX, TLT, GLD, EUR/USD, USD/JPY -- remain as described in the Morningline.