The S&P 500 failed to close above some key levels last Friday for the end of the month which raises the probability we see some weakness this month.  Interestingly, I recently read that the range of the stock market this year has been the tightest market since the 1880’s.  So we’ll see if any weakness is quickly picked up, as it has been all year, or if we actually see a “normal” sized pullback.

The June call spreads I sold a few weeks ago to hedge the growth side of portfolios look like they’ll expire with a max profit so I sold the next set last week with an expiration date in August.

In tax-deferred accounts like IRA’s, I also sold a few stocks that have had strong runs this year and simultaneously sold put options underneath them.  This allows us to still make some money if the stock holds or continues to rise, but repurchase it if it pulls back while saving 6% or 7% on the downside.  One example is Starbucks (SBUX), which is up approximately 27% on the year.  Great company but the stock is pretty pricey and could easily give back some of those gains if we see some weakness in the market as a whole this summer.  In taxable accounts I’ve held the stocks and sold call options over top instead to avoid realizing the taxable gain.

The ISM Purchasing Manager’s Index (PMI) for May comes out this morning.  We’ve been trending toward contraction all year so today’s number could be an important indicator of where the stock market could be heading this summer.  We’ll see.

-Nick