EOT Position Update – April 11, 2012

| April 11, 2012

April 11, 2012

Market Snapshot

“The market is wrong!  Stocks shouldn’t be going down because things are getting better.”

We hear comments like this when the market is being hit as it has in the past week.

However, the problem with this type of thinking is that it assumes the market is rational.  It also assumes that we have the correct perception of what’s really happening in the overall economy.

I want to drive home an important point…

It shouldn’t matter whether you agree with the way the market is acting.Remember, our primary goal in this uncertain economy is to protect capital.  And if we step back from the big market gains lately, we’ll see there are still warning signs on the ground that can’t be ignored.

For example…

Over the past few weeks, I’ve pointed out that the domestic economic data flow has been soft.  But somehow, the market has been able to shrug off such news.

Regardless of the optimism that has advanced US equity trading so far this year, Friday’s non-farm payroll employment report was far from spectacular.  Coming in at nearly half the forecast, it offered the first meaningful catalyst for bulls to begin taking profits on positions.  And this could be the start of something far bigger.

In addition, yesterday’s import price reports illustrated an inconsistent outlook.

If you don’t already know, the import price index is compiled for the prices of goods that are bought in the United States, but produced abroad.

And again, today’s report was a mixed bag.  The headlined number of 1.3% was skewed by a jump in petroleum prices.  But that may not last.  Oil prices have been edging lower this month.  And that points to a potential downswing for petroleum in April and May.

These continued conflicting economic data reports support my expectation that stocks will remain under pressure for now.

Bottom line…

It’s tempting to buy stocks after the pullback, but discipline is important here.  Be careful not to jump the gun as the market is still vulnerable here.

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.

  GLD June 2012 $154 Puts
GLD is still in a downtrend and is now trading around $161.  Gold is going to remain under pressure as long as there is global uncertainty.  Right now our Put options are hanging in nicely.  As long as GLD’s downtrend remains intact, we’ll continue to hold onto our options for increased gains.  Remember, we want this ETF to fall.  Resistance is at $170 and $180.  Support is at $150 and $140.

  TRV April 2012 $60 Calls
Travelers’ stock is trading exactly where it was when we recommended buying these call options.  However, since the stock hasn’t really moved… time has eroded our options price.  We were looking for TRV to rise in value over the last few months and it didn’t.  Let’s go ahead and sell these options now and preserve capital.

Category: EOT Update

About the Author ()

Comments are closed.