Tom Konrad, Ph.D.
The current rally from the March 5 bottom has been breathtaking, especially in Clean Energy, with my Clean Energy Tracking Portfolio up 70.5% since it was assembled at the end of February (as of May 1), 11% higher than it was at the three month update last week, and the S&P 500 is up 41% from its March low. Even in a better economic climate, gains of this magnitude would have me running for cover. In the current economic climate, with a gigantic mountain of debt keeping consumers out of the stores, makes me feel this bear market rally does not have much farther to go.
This is mostly a gut feeling, but when it comes to predicting market moves, most methods (including my gut) are pretty worthless. I’ve actually felt that this rally was on its last legs for the past month, and it continues to head higher. It’s easy to predict the market, and then point back to the times you have been right, which is why I don’t generally make calls like this publicly.
On the Sidelines
Why am I making the call? Because I don’t have anything to say about specific stocks. The recent moves have been so extreme, I can’t find any stocks that I’d want to buy anywhere close to these levels, and so I can’t get excited about writing articles encouraging anyone else to buy them, either. Maybe I’ll research something to short, like First Solar (FSLR)
Until then, I’ve been selling covered calls on what I do own, to hedge some of my downside risk. Unlike selling Cash Covered Puts, a bullish strategy I’ve discussed in the past, selling covered calls reduces your overall risk, so most investors (even relatively inexperienced ones) can get the necessary options permission from their broker. US laws even allow selling covered calls in IRAs.
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