Born To Sell Seller's Paradise 
Aug 3, 2011 
Market Oversold

The DJIA just witnessed its longest losing streak in 34 months -- 8 down days in a row representing $830 billion of lost market cap. Ouch.

The market is oversold and a bounce up is likely. It may happen tomorrow, or it may happen in a couple days after Friday's jobs report, but it should happen soon. Now is a reasonable time to buy back any calls you have shorted that have fallen in value since you sold them. Wait for the bounce up, and then sell them again. Yes, this is market timing. But big drops like the last 8 days make for a reasonable time to take advantage.

Companies Are Strong And Have Cash

The Congress-manufactured debt ceiling crisis has caused havoc with the market. The spectre of a US debt default combined with a threatened downgrade of the US credit rating created a rush to sell equities and buy Treasuries. However, consider that corporate profits and margins are strong, balance sheets are in better shape than they've been in for a while, interest rates are low, and energy prices are coming down.

By almost any historical measure, stocks are cheap. Of course, consumer spending was down in June which freaked people out. But autos are a huge part of that number and there were almost no Japanese cars for sale in June due to nuclear accident supply disruptions in Japan. It is possible that June was an anomaly that will be corrected in the July and August consumer spending numbers now that Japanese cars are available once again and that the debt ceiling crisis is resolved for now.

Contrarian Investing

When the prevailing investor mood swings one way, it can sometimes be profitable to move the other way. Let's compare the market's biggest peaks and valleys since 2000 with June 2011 and use mutual fund flow data to see how the crowd did:

DateMutual Fund FlowS&P 500
next 12 months
Mar 2000, peak+ $40B (bullish)down 22%
Oct 2002, bottom- $8B (bearish)up 17%
Oct 2007, peak+ $11B (bullish)down 36%
Mar 2009, bottom- $25B (bearish)up 45%
Jun 2011- $18B (bearish)?

Mutual fund flow is not the only indicator to look at but should be one data point to consider for medium to long term holding periods if you have a contrarian view point.

MSFT And 3 Other Covered Calls For Aug 20 Expiration

With just over 2 weeks to go until the Aug options expire, the top 4 covered calls Born To Sell members have written are (in order of popularity):


(Note: Born To Sell members have access to the full Top 10 Covered Call list, as well as having this list update real-time as members change positions. These are not recommendations, they are merely a reflection of our members' current positions.)

AAPL And Other Covered Call Watchlist Stocks and ETFs

Currently, the top 8 stocks Born To Sell members are using for their Watchlist are (in order of popularity):


(Note: Born To Sell members have access to the full Top 20 Watchlist, as well as having this list update real-time as members change their watchlists. And, you can have the highest yielding covered calls from your personal watchlist emailed to you after the close each day. Never miss a fat premium from your watchlist again!)

Balanced Budget Amendment

It is not our goal to make political comments in a newsletter about covered call investing, but we came across an article on balanced budget amendment attempts we found interesting. Turns out we've been within 1 vote of having such an amendment in both 1995 and 1997. read more...

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Happy Trading,

The Born To Sell Team

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