The last quarter of a tumultuous year is upon us. I’m sure you’ve already heard the stats about the previous three quarters this year and how it was the first time we’ve had three losing quarters in a row since 2008. Let’s focus on the future.
Here’s my take on what is to come. The Fed will succumb to pressure from the current administration right before the midterm elections and will find a way to relay some positive news, giving way for a relief rally.
I expect to see some sector rotation over the next week or so as institutions start the new quarter and the new month.
Earnings are here again and I think companies like FedEx are coming out with their doomsday messaging as a way to come out later and beat earnings expectations.
Overall, history says when September is a bad month with an eight percent or more loss, October tends to be positive.
My approach will still be to focus on the stocks in the strongest sectors and to trade with reduced trade size and take quicker profit as I think we will continue to see bull rallies within the existing bear market.
Healthcare has been one of the strongest sectors over the last month, relative to the other major sectors.
Humana (HUM) is trading above its 50-day moving average and an October covered call at the $487.50 strike is bid at $20.70 (using after-hours pricing). The stock is currently trading at $500, resulting in a 6% return in 18 days or so as long as the stock stays above $487.50 by expiration.
I know it’s expensive. You could still use the October expiration and sell a $470/$465 bull put spread for $1.35 per contract. The trade will be profitable as long as HUM doesn’t fall by more than six percent by expiration.
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