EOT Position Update – December 17, 2008

December 17, 2008

Market Snapshot

The market seems to be heading higher.  We’ve put together a solid week of gains, and we’re up so far this month.  We’re now well above the November lows and heading the right direction.  I’m not convinced … yet… that we’re out of the bear market, but signs are looking good.

The big news this week . . .

The Federal Reserve cut interest rates to historic lows.  We’re now at a rate of 0% to 0.25%.  I don’t think it’ll go any lower!  The Fed is doing everything they can to pull the US out of this recession.

The US dollar fell on the news of the rate cut.  The markets rallied hard on the news.

The rest of Wall Street continues to be fixated on the Madoff Ponzi scheme.  The breadth of the scandal and the “who’s who” of investors is amazing.  It looks like the SEC is set to be punished worse than Madoff for the crime.  Politicians are looking for a fall guy, and right now all fingers point at the SEC.

Goldman Sachs (GS) announced a big quarterly loss… the stock rallied on the news.

Now for the trade 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.

 WPI February 2009 $25 CALLS (WPIBE)
This was a new trade sent out yesterday.  The stock moved higher, today trading briefly over $25.  The option’s showing a gain of 38% already.  Resistance levels will be at $25.50 and again at $27.  Support levels are $22 and $21.

  GVA January 2009 $55 CALLS (GVAAK)
After releasing this recommendation last week, the stock dropped lower, momentarily crossing our first support levels.  After trading below $40 we watched the stock rebound above $46 a share.  The recent price movement gave everyone a great opportunity to establish an option position below our buy up to price.  Give this trade a few weeks to develop.  As news of the Obama stimulus package starts getting more airtime, this stock should move higher.  Resistance is $50 and $55. Support will be at $41 and again at $37.50.

  IBM January 2009 $60 PUTS (IBMML)
IBM’s stock keeps moving higher.  We’ve seen a few down days followed by a big jump higher.  The price action on the stock isn’t looking good.  Watch this one, we’re close to our resistance levels.  Resistance is $90 and $95.  Support will be at $72.50 and again at $70.

  SU January 2009 $17.50 PUTS (SXHMW)

Despite the fall in oil prices, SU is holding tight.  Watch this one closely; we’re right up against the first resistance level.  Resistance is $23 and $25.50.  Support will be at $17 and again at $15.

Parting Shots…

Are we now at a bottom on the Dow?

This seems to be the question on everyone’s asking these days.  I predict you’ll see more chatter about this being the bottom of the market in the next few days.  Why?

Because we hit an important technical level.

As you’re probably aware, many market technicians look at the 50-day moving average as a key trend indicator.  When we trade below the line we’re in a confirmed downtrend.  When we trade above the line we’re in an uptrend.

Look at this recent chart.

You’ll note for the first time in months we’ve crossed above the 50-day moving average.  Now, remember, this doesn’t guarantee a move higher.  In August we also watched the market trade above the 50-day moving average.  Everyone knows what happened after that.

Despite the recent downdraft in the market many investors are looking for a reason to buy.  This might be enough to push some investors sitting on the sideline into the market.  And that might be the start of a rally.

Category: EOT Update