Bear Market Bottom May Be Another 5.3% to 27.8% Below Monday's Closing Prices

Pick good undervalued dividend stocks with active and liquid stock options that can be used to generate weekly and monthly income by selling covered calls and puts options.

By Donald E. L. Johnson

Cautious Speculator

Point and figure charts can be used to calculate bearish stock prices and bullish stock and ETF prices. StockCharts.com’s PnF charts do the calculations using momentum metrics. Dividend stock investors and covered calls and puts traders can use the price objectives to time trades and pick strikes for their options trades.

The PnF charts for SPY, DIA, IWM and QQQ are shown above. Please click on the image and zoom in for a better view. These are price objectives, not targets. And they’re not guaranteed. They are pictures of a point in time.

These price bearish objectives show that based on Monday’s closes, SPY could drop another 5.3%, more or less. DIA’s bearish price objective is 6% below its Monday close. IWM’s bearish price objective is 9.2% below and QQQ’s objective is about 13.8% lower.

A trader who is trying to nibble or pick the bottom on SPY, the exchange traded fund that tracks the S&P 500 index, could sell SPY 6.17.22 $381 strike puts. That strike is the PnF chart’s bearish price objective. The trade would provide about 23% annualized return on risk (RoR). The delta is -.33, which indicates that there is about a 33% chance that SPY will be below the $381 strike when the option expires and the trader will buy 100 shares of SPY for $381.

If an income trader is reluctant to risk buying SPY at $381 38 days from now, she could sell SPY 6.17.22 $350 strike puts. That strike is 11% below SPY’s current price of $396.36, The annualized RoR would be about 9%. A lower strike would provide a lower RoR.

These are bullish PnF charts with price objectives for CVX, XOM, KMI, XLE and GOLD.

A dividend stock investor could buy one of these equities and sell covered calls to generate options premium income.

In a buy/write trade, an investor could buy XOM for about $84.39 when it’s bullish price objective is about $84.80.

He could sell XOM 5.20.22 expiration (10 days) $87 strike calls for about a 48% annualized RoR (158% annualized RoR if the calls are exercised). The .32 delta implies that there is about a 32% probability that the calls would be exercised and provide a small, short term capital gain.

Nobody can predict stock prices. All we can do is trade, or not.

LINKs:

Home Page. See previous articles on other stocks and watch lists. If you read several of these articles, you’ll learn how this strategy is meant to work. No guarantees. Links to useful web sites are on the lower right corner of the home page. Scroll down.

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Beware

Like all investing, trading stocks and options is risky. If you can’t sleep with market risks, you might want to let someone else do your trading. Consider an option trading ETF like XYLD, which I own. I also trade its calls and puts. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I own and have options positions on KMI, IWM and DIA. I reserve the right to trade any of the listed stocks and options at any time. I receive no compensation for producing this content nor for any links.

@realDonJohnson. Because I don’t want to litter subscribers’ in boxes with emails, I write only one or two newsletters a day. I’m active most days on twitter where I tweet about stocks, options trades and other topics.