For those that track DALI often, you likely noticed that the Technology moved back into first place after passing up Communication Services. Although both sectors are tied with 213 signals, the tiebreaker goes to the sector with the most Xs (aka the most near-term strength), which is the Technology sector in this case. With new technology and AI developments happening almost every other day, it may be tempting to simply pour money into those areas. While our technical attribute and fund scores serve as a strong foundation for identifying what to buy, incorporating the weekly OBOS indicator as a secondary tool can help pinpoint when to buy, by highlighting near-term overbought or oversold conditions and offering valuable insight into a stock’s near-term performance.

The weekly Overbought/Oversold (OBOS) is an indicator that tracks a security’s price in relation to its previous prices, to determine how ‘overbought’ or how ‘oversold’ a specific security is. Broadly speaking, the OBOS is computed by:

1. Taking ten weeks’ worth of price data (50 days)
2. Computing the “trading band” of the security, by using a volatility calculation
3. Determining the location of the current price relative to its “trading band”
4. Expressing the result as a percentage (e.g. -70%/+70%)

As described on our Weekly Overbought/Oversold (OBOS) white paper, securities tend to exhibit a "mean-reversion," meaning that prices often move back toward the middle of their trading band after experiencing strong short-term market fluctuations. When looking at 1000 of the largest US-listed equities over the past 30 years, the chart below details the number of weekly OBOS observations (1.56M to be exact), split up between each of the 6 weekly OBOS buckets (refer to chart to see bucket ranges). When looking at the 1-week and 2-week forward returns on the chart, the concept of mean reversion becomes quite evidence. Periods when a security is oversold tend to show stronger positive returns, while overbought conditions are often followed by slightly negative performances (click here to read more).

To demonstrate this phenomenon using a real example, we can highlight Oracle (ORCL) after its large 35% performance last month. As shown below, ORCL reached a high above $344, before consolidating in price over the next few days. The stock ultimately reached a second sell signal at $272, roughly 20% below its high as it moved towards the midpoint of its 10-week trading band. Oracle reached a weekly OBOS reading <70% on September 17th when the price moved closer to $300, which, had you decided to invest when the OBOS was in more normalized territory, you would have been up slightly after today’s move.

In conclusion, having a clear process for entering a position is essential. With so much happening in the market at any given time, its easy to feel the urge to jump into every opportunity. However, using the weekly Overbought/Oversold (OBOS) indicator as a timing tool can help getting more favorable entry points, potentially avoiding losses in the near-term.

Q3 earnings season is here as Delta Airlines (DAL) reported this week, and banks will begin next week. So far, there hasn’t been much drama, but earnings season can be one of the most volatile times for stocks. With earnings announcements happening almost daily in the coming weeks, many investors may wonder: "Am I going to hear any bad news from the companies that I own? And if the news is not good, how will my positions hold up?" Additionally, the government shutdown and the ongoing interest rate cut debate for the Fed have provided plenty of uncertainty for investors as Q4 begins. Fortunately, if investors rather not just sit on the sidelines and hope to luckily avoid any earnings disasters, the option to buy some temporary insurance in the form of protective puts. First, we'll review a few basics on puts, and then we’ll offer three examples.

Many investors have difficulty understanding puts, but the strategy is relatively simple. If anyone owns a car, they likely own a put on it, provided they carry collision insurance. A put is simply a contract giving the buyer the right, but not the obligation, to sell stock at a specific price (the strike price) during a specified period. The underlying stock can be "put," i.e., sold to the writer of the put for the strike price, anytime between the time the option is purchased and the time it expires. Similarly, if someone has an accident in their car, there is an insurance policy that states that the underwriter will pay the cost of the damage. Conceptually, a put is the same thing - pay a premium to protect a stock position, the only difference is that we are insuring against damage to the value of the stock rather than a car. In either case, if an accident occurs, losses are mitigated by the insurance purchased. The payoff diagram below from Investopedia provides a decent visual.

An essential characteristic of protective puts is that they do not cap the upside potential within the stock (as does selling calls against a position). Instead, if the stock hedged with puts continues to move higher going forward, an investor participates in the upside at all points and returns are only diminished by the premium paid for the put. Just as no one relishes paying for car insurance, no one is excited about paying the premium for a protective put. Investors must ask whether it is worth laying out the premium to have this insurance in place. If the answer is yes, then consider buying protective puts on stocks owned. 

Before getting into today’s examples, five additional points:

• Only buy one put for every 100 shares owned (or want to hedge). Don’t over leverage by buying more options than needed to protect the position.
• If using puts to hedge an earnings report, make sure to buy puts that expire not too far after earnings. That way we aren’t paying for time we don’t need to hedge. Considering that next Friday marks options expiration for October, investors will likely look to November’s expiration, unless options with notable open interest are available at more near-term expiration dates.
• At-the-money strikes are useful for hedging the current value of the underlying stock position. However, if only wanting to hedge a 5% drop or larger, then use an out-of-the-money option.
• Protective puts are most useful on stocks that have run hot going into earnings and either have little or no support nearby

The stocks discussed below is non-exhaustive as other protective put examples include names like Electronic Arts (EA) and Advanced Micro Devices (AMD).

Protective Put Ideas

Caterpillar Inc. (CAT) – Machinery and Tools – Caterpillar capped off Q3 2025 up 22.9%, outperforming the S&P 500 Index (SPX) by more than 15%. The stock has continued that positive run, kicking off Q4 with CAT rally 4.8% while SPX has registered just 70 basis points (through 10/9). On the point and figure chart, Q3’s action kicked off with improvement to highs, and after reversing down to support near 2024 highs in August, CAT gave a third buy signal in September on its way to recent highs.  The stock has been at least a 3 technical attribute stock for 3 years and has maintained a 5 TA rating since July of this year. The stock currently ranks within the top decile of the Machinery and Tools sector matrix and maintained within the top third since September. The recent rally to a new all-time high places CAT in overbought territory near the top of the 10-week trading band. Additionally, support on the default chart in the lower $400 level sits more than 18% from current prices, making CAT a prime candidate for considering insurance through protective puts.

Western Digital Corporation (WDC) – Computers – WDC has been among the stocks benefiting from the AI theme this year as the stock is up 165% year-to-date and rallied more than 300% since its April lows. On the point and figure trend chart, WDC capped off Q3 with a third buy signal at $114 as shares rallied to new all-time highs at $136 before pulling back to $118 at the end of last week. The stock has been a 5 for 5’er since May of this year and currently ranks within the top quintile of the Computers sector matrix. Even with last week’s action ending with pullback from highs on the chart, WDC still trades above the top of its 10-week trading band with a reading of 125% overbought. Additionally, while there may be near-term support at $106, there is sparse support elsewhere before reaching notable support in the $60 to mid-$50 range, roughly 50% from current prices. Given WDC’s recent run and lack of near-term support, piece of mind could be given by considering a hedge against the position.

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