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When the Dow Transports hit new highs, the Dow Jones Industrials and the broader market tend to follow to the upside, so I think there’s a 75% chance that the market will be higher three months from now and roughly an 85% chance that the market will be higher six months from now.
However, in the shorter term, September is typically one of the worst months of the year for stocks; this is usually about the time when the market undergoes some corrective action. Also, the latest Investors Intelligence survey suggests that about 57% of advisors are bullish, which is the highest reading since January when the reading was at over 60%.
While it’s not as high as it was at the start of the year, the bullish field is clearly getting more crowded, and that’s usually when things start to turn around and go the other way. So even though several major indices have set new all-time highs this week, it’s wise to have some protection — and that’s what I’m aiming for with today’s recommendation:
Buy to open the Starbucks Corporation (NASDAQ:SBUX) Sept. 21st $51 put at about $0.33.
Puts are cheaper now, which makes them a more attractive proposition. A downside position on SBUX, close to the money, for just $33 is cheap insurance on the market — and this stock in particular I think is headed lower.
The technical picture is very bearish for SBUX. It has a lot of overhead resistance right above where it has been, and it looks like it’s coming down. If we have any kind of correction, that thing’s going to fall like a rock.
Starbucks is overloaded with a lot of competition…and even their restrooms have been a problem! So, it faces a lot of obstacles. And mainly I am looking at that weak chart. This is a long-shot bet, though — putting a small amount of money down, in case things fall apart.
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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.
