As the chart shows below we definitely have gone below the September lows we printed last month and this normally means that an intermediate cycle has begun. However the recovery that we have had over the past few weeks signals to me that equity markets continue to be propped up and will probably continue like this until we have the elections.
Therefore we sold our profitable equity positions in our portfolio today. The only way I would play this market at present would be to play some really strong stocks with competitive advantages that are currently way oversold. Two stocks that spring to mind would be Gilead sciences (NYSE:GILD) and Disney (NYSE:DIS). Both have earnings coming up shortly..
The former has been on a serious downward spiral since June of last year but we may have a swing low in place so the bottom could be in. With an earnings multiple of just over 6, I see limited downside risk in the stock. Eventually its HCV sales will bottom out and I like the look of its pipeline especially in NASH. Selling puts in here when the company announces earnings shortly should be fine as long as one can hold the stock long term (and collect the dividends along the way) if stock is put to you..
Disney has been crucified by the market due to the declining numbers in its ESPN network. However this stock is more than the media networks. Its studios division and parks have been growing meaningfully. I believe the market has this stock too oversold at present. Again selling puts or put spreads in here when IV is high should prove successful trades.