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How I Test the Market’s Strength

Want to know how to hedge in this rally, plus two sectors to watch?


It should be getting clearer.  The Fed is really the only driver in the financial markets right now.   I’ve always anticipated earnings season to be choppy with upside surprises, owing to the low expectations set by companies and analysts,  but with the Fed stimulus going on,  I think some falls will take place naturally, but we are not seeing the last gasps of the recent highs. U.S. indexes will keep hitting records for some time.

Remember this rally is fed by the Fed.  They already said they will be basing their decision to end or taper stimulus looking at job growth and inflation.  However, don’t expect  anything stellar in job growth. U.S. policy is simply not  competitive in the world for  labor-intensive industries like agriculture, manufacturing or service sectors.    In this global economy, U.S. labor is way too expensive.  (Do tell when they can compete with labor costs from China!)  There are of course plenty of people who would debate the end or “tapering” of stimulus.  Just let them have their fun.   But remember jobs in the equation.

Is the Rally Gasping its Last Breath?

So, are we rallying on or what?  How I breath-test the market is to hedge stocks I hold with either covered calls or buying puts a little  below the one-month support level (which was in June, you might still remember the bloodbath).  I haven’t had a big win on the downside since the start of the new quarter,  i.e. the support level hasn’t been breached.  So that tells me this market has plenty of breaths to take.  There is one thing possibly lurking in the shadows that could surprise and pierce that support, though. Two words: European Union.

Sectors to Watch

Now, since we are getting some price drops from the recent highs, I am looking at technology stocks. I think that money will again find its way in this sector.  Apple (AAPL) has yet to come up with a new product. I have a feeling they will (ok, they should!)  unveil something for the upcoming Christmas season.  Google (GOOG) might finally make glasses cool for the rest of us.  Microsoft (MSFT) might not break through with something but they’ve always made things run around so they are probably still trying for the next big thing.

Another sector that I am looking at is the energy sector.  Oil just seemed to sneak past resistance levels due to recent geopolitical issues in Egypt (where oil routes are located).  However, it is shoulder season, plus  production is increasing in the United States and demand is just not growing, (remember this is tied up with jobs),  and there was already confirmation of downward movement Wednesday with the 1.83% fall of WTI crude oil.  Further falls are going to happen.

Trade with the risk in mind.


Charmel Delos Santos is a full-time trader mom and has never worked for financial institutions—that’s why she knows exactly how to succeed as a private trader.  She mentors traders globally through her trading site discussing low-risk entry and exit strategies, market commentary and trading psychology.  She is the author of High Heeled Traders, the world’s first and only how-to book on stock trading for women (that many men enjoy!)

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