Sideways Market – What to do?
November 18, 2014 MarcoTrade 5,468
It is both constructing and frustrating when the market moves sideways. Below is an hourly chart of the S&P for the last 5 trading sessions.
It is constructive because the market is digesting the strong gains of last month without showing much sign of institutional selling. It is frustrating because if you have stocks that did well at the beginning of the rally, you are probably now asking yourself if you should sell them. The risk is that the market has found an intermediate top and a small correction might be in the works. If that happens and you are holding growth stocks with a high Beta, the chances of seeing your profits wiped out is real. That is a bad place to be considering that 2014 is about to end, so you should really look into your tax position before making any decision.
What I would reccommend is that if you are now sitting on a negative balance (you have realized losses on the books for 2014 already), then it makes alot of sense to take some profits as you won’t be paying taxes on them (or part of them).
If instead you had a positive year so far, then the best strategy to limit exposure is to sell some out of the money calls. In this way, you won’t be realizing the full profit on the trades you have until next year (thus pushing forward a taxable event) and at the same time you have a little cushion for a potential pullback. If the pullback doesn’t happen, you are still keeping the premium of the calls you sold even they get exercised.
Most likely this market will continue higher into the end of the year. This is what happens most years and 2014 should not be any different, giving the strong fundamentals of the US economy and the fact that most companies posted better than expected earnings. As of today, things are looking good for the bulls.
Categories: Market Direction