EOT Position Update – January 26, 2011
January 26, 2011
Market Snapshot
Dow Hits 12,000 Today!
It’s the first time since June of 2008 the blue chip average has seen these levels. It’s been quite a ride since the Dow bottomed out at 6,469 nearly two years ago.
It’s interesting to see the Dow take on a leadership role amongst the major indices. The S&P 500, NASDAQ, as well as the mid and small cap indices are all trailing the advance of the blue chips over the last week.
This is a big change from the last few months. Small and mid cap stocks had been the clear leaders since the markets began surging in September.
However, it remains to be seen if the change in leadership will stick. This could be just a blip on the radar as investors take some gains off the table.
The other big news today is the FOMC meeting.
Let’s get into some detailed analysis… Everything stays the same.
But seriously, the Fed will continue pumping cash into the system by way of quantitative easing. They’ll continue purchasing Treasuries through the end of the second quarter.
With an ever increasing amount of cash sloshing around, I think the markets are destined to move higher from here… Could we see the Dow at 13,000? I think it’s a real possibility before QE ends in June.
Let’s move onto the updates…
Position Updates
Just a quick note: Remember, we won’t update every open position every week. I try to focus on the positions that have some significant news or price movement.
MCD June 2011 $80 Calls
MCD reported earnings in line with analyst estimates. They also posted a 5% increase in same-store sales from a year ago. The increase was led by a strong showing from their Asian stores. The stock didn’t initially respond to the announcement. But overall I think this was a bullish report. It should lead to a higher stock price in the weeks ahead. Remember, our options don’t expire until June so we have plenty of time for MCD to rally. Resistance is at $80 and $85. Support is at $70 and $67.50.
DO June 2011 $79.25 Calls
DO gave back some of its recent gains as oil prices slid back under $90 per barrel. But today oil and DO have come roaring back. DO’s stock is still extremely cheap at a PE of just 11x forward earnings. The bottom line is DO’s upside potential is huge. Hold tight for the next leg higher. Resistance is at $80 and $85. Support is at $64 and $62.
AUY April 2011 $12 Calls
AUY’s pullback came to an end today. The stock touched our support zone yesterday and shot higher by more than 3.7% today. If gold prices can build off their rally today, AUY could finally make the push higher we’ve been waiting for. Hold tight for now. Resistance is at $14 and $17. Support is at $11 and $10.
BAC May 2011 $13 Calls
BAC reported a quarterly loss in the fourth quarter. It was due to a one time $2 billion charge to settle a dispute with Fannie and Freddie over bad mortgage loans. But beyond the headline number, there were many more positives than negatives. For example… Deposits rose to a record $1 trillion, their balance sheet is stronger, credit costs are declining, and Global Wealth and Investment Management reported record asset management fees.
The problem now is BAC’s being hit with lawsuits from institutional investors. They bought mortgage backed securities from Countrywide before they were bought out by BAC. Now they’re coming after BAC alleging fraud and seeking damages. This has the potential to derail BAC until these lawsuits are cleared up. Aggressive traders still holding these options may want to take profits and look for better opportunities. The next resistance is at $17. Support is at $11 and $10.
CNH June 2011 $55 Calls
CNH continues to press higher. The bullish uptrend since the end of August is still intact. Management will report earnings tomorrow before the markets open. Analysts are expecting them to earn 45 cents per share on $3.7 billion in revenue. The next resistance is at $60. Support is at $35 and $31.50.
Category: EOT Update
