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Commodities like oil and copper pulled back this week, accelerating a decline that saw crude oil drop more than 7% since the start of the month and copper give back more than 12% to drop below the $4 per ounce level. Growing concerns about a recession are weighing on investor minds and beyond lower commodity pricing, we are also seeing an increase in layoffs and hiring freezes at companies large and small. The stock market saw a big relief rally this week with the S&P 500 up 4.7% for the week and the Nasdaq doing even better with a 5.8% gain.
Whether this is a bear market rally or whether this action represents the beginning of a new bull market will only become clear in hindsight. I am treating this as a bear market rally and expect commodities to rebound in the coming weeks. While I am in no hurry to start buying stocks aggressively, I did use the drop in the last few days to write naked put options on a couple of technology stocks that appeared to be oversold. The premium some of these options are providing are enticing, especially if you really like the underlying stocks and don’t mind intermediate-term volatility if you get assigned.
Voluntary Disclosure: I hold long positions in Berkshire Hathaway (BRK.B) and Netflix (NFLX).
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