Once again, investors continue to weigh the uncertainty of rising virus cases and the possibility of massive stimulus and vaccine rollouts.
This is an extremely tricky market, especially given the economic conditions facing the U.S. heading into the winter.
Roughly 12 million Americans face eviction with an average rental debt of more than $5,500. Meanwhile, the markets are sitting at record highs as if this isn’t a factor.
This is the K-shaped recovery that I’ve warned about. Let’s dive a little deeper into this situation and look at the Watch List.
This morning, the S&P 500 surpassed a record 3,700 as investors continue to pile into equity markets. I’ve been asked a few times in the last 24 hours what is happening here.
I’ve said it before, and I’ll say it again.
There is really nowhere else to put money.
U.S. bonds are trading at paltry levels. Global markets are facing the same coronavirus pressures. Hell, in Europe, it’s extremely hard to find government bonds that offer ANY yield… and the same goes with private European companies.
Gold prices are the same they were in 2011. Bitcoin remains highly speculative, despite the institutional support in recent months.
People are treating big tech companies like Tesla, Apple, Alphabet, Microsoft, and more as if they are places to store value. The S&P 500 remains very top-heavy with the tech giants. But even then, this ongoing flush of Fed-driven stimulus provided the first rush into equities in the wake of the Spring bailouts.
Today, the focus is on the actions of the U.S. Treasury Department under soon-to-be secretary Janet Yellen. In addition, investors are hoping that a vaccine will simply return this economy back to normal over the next 12 months.
Market momentum remains positive right now. In fact, heading into the final weeks, any pullback would likely present an opportunity.
Cases Continue to Surge
The markets are largely ignoring the virus right now.
Johns Hopkins University announced Wednesday that the U.S. added 1 million new coronavirus cases over the last four days. The surge comes in the wake of a busy Thanksgiving holiday that saw Americans travel across the country to visit family and friends. Dr. Anthony Fauci warns that this spike is likely to continue in the company weeks and could continue through the holiday.
However, that news was offset by a report that the FDA found no concerns with the Pfizer (PFE) vaccine. The update could clear the way for emergency approval by the agency in just a few days. The United Kingdom has already started administering its first Pfizer vaccine shots to patients across the nation.
Why I Like to Sell Puts in Rising Markets
When it comes to ACTIVE trading, one of my core strategies has been to focus on cash-secured puts. But let me give you a few educational points on this strategy.
- Writing (or selling) a put option makes it possible for investors to own a stock at a future date at a much more favorable price. In essence, one sets a specific date on which they want to own shares of something and pick an entry price.
- When they write contracts and sell them, they can generate income by collecting a premium. If the stock does not fall to that desired entry price that they picked by the expiration date, the seller gets to keep 100% of the premium (unless I close the contract ahead of time).
- When someone sells put options in stocks that they want to own, they typically increase the odds over time of creating a profitable trade. In addition to the income they generate from selling puts, they can own the stock they want to own for the long-term. Given the market’s upward bias in the long term, one can lock in the desired price, get those shares, and hopefully ride them to new highs soon.
In this market, it has been helpful for me, and I think you should learn how to utilize this to your advantage right now. I will continue to discuss other conservative trading strategies that can help investors boost income, among other benefits, this week.
MY STOCK WATCH LIST
KNTE: Significant insider buying over the last month has drawn some attention to this Biopharma giant. Sentiment appears to be increasing for the company across media outlets. But again, the $50 million in insider buying over the last week has drawn my attention. This can be a positive catalyst in the biotech sector.
AVIS: The auto rental giant Avis Budget Group was left for dead alongside its bankrupt competitor Hertz earlier this year. But the stock has surged more than 500% from March lows. What has been interesting to watch is the recent swing from $36 to above $40 and now back down to $37.65. Wall Street can’t make up its mind.
TOL: Toll Brothers just had a massive quarter in terms of production and its ability to ride the remote, work-from-home trend. But TOL fell more than 7.9% after its earnings report on Tuesday. This could be an overreaction, and it might set itself up for a small rebound today. Wall Street is bullish. UBS just set a price target of $62, a figure that represents an upside of 36.8%.
DASH: DoorDash will make its public debut at a diluted value of $38 billion. Why not? The company just raised $3.37 billion by selling shares on average at $102.
Other stocks to watch: KNDI, CEVA, DDOG, TURN, SMP