EOT Position Update – April 15, 2009

| April 15, 2009

April 15, 2009

NOTE:  Watch for a new trade in the next 48 hours.

Market Snapshot

We’re still struggling to get above the 8,000 mark on the Dow.  We started the month of April flirting with that level, but have been unable to sustain a rally above 8,000. We’re starting to see signs of the market turning.  We might retreat a bit here, but more and more indicators are pointing to a longer term uptrend.

If this trend holds, we’ll start shifting our strategy to take advantage of market movements.

The big news this week…

First off, Happy Tax Day!  Every year I cringe when I see what a big chunk of my money the government is taking.  I also have to hold back criticizing people who celebrate getting a tax refund… don’t they realize they made an interest free loan to the government!?!  Enough of my rant, let’s look at the markets…

Earnings season is in full swing.

Proctor & Gamble (PG) increased their dividend this week by 10%.  It’s a nice show of strength for a consumer staples company.

Intel announced earnings this week, blowing away analyst estimates with a $0.11 EPS. This might be the first signs of tech leading the market higher.

More problems at GM… when are they going to put this company out of its misery? Seriously, they don’t let injured dogs suffer this long.  GM’s latest move was a recall of 1.5 million cars; apparently they might catch on fire.

Positive news out of some financials propelled the market higher.  Goldman crushed estimates.  Their earnings were almost double analyst estimates, and now they’re looking to pay back the TARP funds.

Despite some positive news, negative announcements also bounced around… Chevron and Boeing guided to lower earnings and Wal-Mart announced lower same store sales.

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.

  SPLS June 2009 $20 PUTS (PLQRD)
I sent out this trade on Thursday, just before the long weekend.  Looks like we got established at just the right time.  The stock peaked over 21 Thursday, and has traded lower.  At one point we dropped below $20.  We have lots of time on this option, so let it run.  Resistance is $24 and $26.  Support is $16 and $14.

  GE June 2009 $11 CALLS (GEWFI)
GE is like the little engine that could!  The stock keeps marching slowly higher.  This week we traded above the $12 level!  That put our option well in the money, and gave us a return of more than 140%.  Congratulations on another triple digit winner!  We have lots of time on this trade so aggressive traders hold tight; the next resistance level is $13.75.  Support levels will be at $8.25 and $7.

  ORCL June 2009 $19 CALLS (ORQFT )
We continue to hover around that $19 level.  We have some time on this option, for aggressive traders still holding, sit tight.

  EMC April 2009 $11 CALLS (EMCDM)
These EMC options expire in the next two days.  If you haven’t already, exit the position.  These options have quite a bit of intrinsic value, and everyone should be showing a profit!

Parting Shots…

What The VIX Tells Us?

One of the key metrics I keep my eye on is the VIX.  I’m not alone; most professionals focus on the VIX as well.

I know I’ve written about the VIX in the past.  Basically, the VIX is a measurement of volatility in put and call options on the S&P 500.  It was originally introduced by the Chicago Board Options Exchange (CBOE) in 1993.  It’s now widely used as a measurement of market volatility… basically a measure of “Fear and Greed”.

Historically, when values on the VIX are greater than 25, the markets are unsettled and investors are fearful.  Of course that measurement has been thrown out the window with the recent global recession.  Just last quarter the VIX traded above 80!

Just look at this chart.


You don’t need to tell me how scary the market was… it shows up clearly on the chart.

Let me point something out.  In the last few months the VIX has stabilized between the 40 and 50 level… and it recently broke lower.  So the markets are calming even though we are entering earnings season (which normally has investors on edge).

I point this out as one more sign the markets may be returning to normal… and hopefully heading higher.

Category: EOT Update

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