EOT Position Update – April 2, 2008

April 2, 2008

Market Snapshot

The Dow Jones Industrial Average closed at 12605 today.  It had closed down late last week then rallied on Monday and Tuesday.  Tuesday was amazing to watch.  The Dow rocketed higher by almost 400 points.

The first quarter is finally over.  The volatility over the last few months have been ridiculous . . . the VIX is still well above the highs set over the last few years.  That doesn’t bode well for volatility decreasing.

The commodity markets are still on a tear.  Oil prices are continuing to set record levels.  Just a few days ago oil was trading near $110.  They’ve recently retreated to the $100 level but I’m expecting oil to go higher not lower.

Other commodity prices like corn and rice are also off a bit from their highs.  I consider them “taking a breather” more than reversing their trend.  Demand out of the emerging markets like China and India are going to drive these commodities higher for the next several years.

Now for the trade updates.

Position Updates

   RRC May 2008 $65 Calls (RRCEM)
Today RRC closed above $65.  We crossed our first support level, and we still have lots of time on the option.  Congrats to those who captured a quick profit on this trade.  Next resistance is at $70.  Support levels are $57 and $54.

   COP May 2008 $75 Calls (COPEO)
COP touched 75 briefly, before moving higher this week.  Today we closed over $78. Resistance is $79 and $85.  Support is $70 and $67.50.

   NSC June 2008 $55 Calls (NSCFK)
After falling below the 53.50 level this week, NSC has rallied above 55.  This puts us in the money on the options.  Resistance is $56.50 and $58.50.  Support is $49 and $47.

Parting Shots…

The volatility in the first quarter has been ridiculous.  Just take a look at the VIX.  This chart’s a measurement of the volatility of at-the-money put and call options on the S&P 500.  Look . . . you don’t need to know how it’s calculated.

What you need to know is that it’s a measure of investor fear.

The blue line is a moving average over the prior 50 days.  See how it suddenly angles up and to the right.  This shows that we are in the midst of one of the most volatile markets in years.  The last time the VIX was at these levels was 2002 . . . and we all know what was happening in the markets then.

When values on the VIX are greater than 25 the markets are unsettled and investors are fearful.  When the VIX is below 20 the markets are relatively calm.

This tells me one key thing.  It may feel like the markets are calming, but they’re not. Be prepared for more market volatility.

Category: EOT Update