How to Play a Market That Isn’t Going Your Way

My latest column is up at RealMoney.

I usually want a stock to score highly in four out of five categories before giving it much consideration: earnings momentum, earnings quality, price momentum, free cash flow and return potential.

This week, only three stocks went four for five, and I’ve talked about them all before: W&T Offshore (WTI) , Pitney Bowes (PBI) and Rent-a-Center (RCII) . As I look for new investment ideas, I’m left with three options, each of which has significant drawbacks.

1. Go short
2. Change strategy
3. Stay on the sidelines

I seldom short stocks, but I’ll probably try to scratch out some extra gains by writing covered calls on stocks like Ansys (ANSS) that I like long-term, but that look a little stretched in the near term. I also will likely leave a little cash standing by to put to work when conditions are more favorable. But like many investors, I generally plan to stay long and close to fully invested. In markets like this one, that means shifting gears a little bit.

Without straying too far from my comfort zone, I’m considering letting my winners ride (and possibly paying up for those like WTI that meet my criteria but have seen strong rallies), searching for deep value plays, and possibly even making a speculative play or two.

Disclosure: At the time of publication, William Trent has a covered call position in Ansys (ANSS) and has written put options against the shares of NutriSystem (NTRI).