Overbought conditions weigh in on the indexes…

Despite a stronger than expected report on Monday coming out of the construction sector and a higher reading from the ISM manufacturing index, equities and commodities for the most part have been trading lower. The question now is are we experiencing a market that is just tired and needs to consolidate for a bit, or is this something more? Even the consumer is showing signs of life according to MasterCard (NYSE: MA). The company came out yesterday and reported a very strong quarter with an earnings per share increase of 24% on the heels of cardholders spending more money. A much welcomed sight to see a more confident consumer. However, the markets seemingly have gone straight up over the past several months only to be met with occasional pullbacks.

If a consolidation pattern occurs with the indexes or commodities, a common investment thesis in this type of market is to implement a covered call program on your long positions. This is one way to generate income while you wait out a consolidating or sideways market. This strategy is complex and is not for everyone, so be sure to consult your professional financial advisor should you choose to consider such a strategy. Time will tell whether or not we are entering a period of consolidation and I will certainly be keeping my eyes open should it turn out to be something more.

Good luck to all.