EOT Position Update – April 4, 2012

| April 4, 2012

April 4, 2012

Market Snapshot

Many investors are coasting through the holiday-shortened week.

And that’s a good thing.  As you know, we had a big first quarter, so a holding pattern should be welcomed by all.

However, similar to the devastating storms in Texas, I think the S&P 500 isn’t too far behind.  Hopefully it won’t show the same disaster, but it doesn’t seem like this market is ready to decline.  And that’s usually when the storm comes.

Clearly, we’ve had a few cloudy trading days over the past couple of weeks. And that means clear days might be a long way away.

It’s all due to economic data surrounding Quantitative Easing (QE) and housing…

Monday, an unexpected reversal of both newly started foreclosures and finalized foreclosures dropped precipitously in February.  The so-called foreclosure starts fell 15% month-over-month and foreclosure sales fell 19% month-over-month.

This might appear to be good news.

Here’s the problem…

I think California housing based analyst Mark Hanson said it best, “Contrary to popular thinking, the eradication of foreclosures will lead this housing market into paralysis, not recovery.” 

This could be the sign of more problems ahead for housing.

Now let’s turn to the QE discussion.

The discussion around whether the Federal Reserve will engage in additional monetary easing is a perfect example of how investors think.  If you listen to any financial journalist, they’ll usually ask, “Do you expect more QE?”  And on cue, most of the responses indicate that we’ll get some type of easing before the end of 2012.

Well, it looks like most of these guys may have been wrong.  It seems QE is now less likely. 

The Federal Open Market Committee (FOMC) minutes were released today.  And the result, a broad market sell-off over the two trading days.

Bottom line…

It may seem like some of the economic data is improving.  But the major economic events are at a standstill.  This isn’t good news for the overall market.  I expect the S&P 500 may be at a top for 2012.  As such, we’re going to continue to exercise caution.

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 continues its downtrend.  It’s now trading under $158.  Our Put options are gaining ground as this stock closes in on the $154 strike.  As long as GLD’s downtrend remains intact, hold onto our options for increased gains.  Remember, we want this stock to fall.  Resistance is at $170 and $180.  Support is at $150 and $140.

  CLNE June 2012 $19 Puts
Clean Energy Fuels is trading down $2 since our recommendation Monday.  More importantly, as Natural Gas and Coal remains under pressure, CLNE will as well.  Our puts are already up almost 70%.  Since we have plenty of time, we’re sticking with this one for a while.  Remember, we want this stock to move lower.  Resistance is at $24.50 and again at $25.50.  Support is at $18.50 and $17.50.

  GRPN April 2012 $21 Puts
Groupon shares are doomed.  Congratulations to us!  After the news broke about Groupon’s accounting irregularities, GRPN plummeted by more than 20%.  Since our puts reached the first support level of $18, we advised conservative investors to take profits.  For aggressive traders who are still holding GRPN puts, it’s now smashed through the second support level.  These puts are deep in the money; they’re trading just about dollar for dollar.  With three weeks left until expiration, go ahead and take profits at any time.  Nice job!

Category: EOT Update

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