EOT Position Update – April 8, 2009

| April 8, 2009

April 8, 2009

NOTE:  Watch for a new trade tomorrow.

Market Snapshot

The last few days haven’t been so hot in the market.  Despite today’s small rally, we had two big down days to start off the week.  We’re slightly above the same point last week, but below the highs of 8,000+ we hit a few days ago.

The big news this week…

Earnings Season is here… let the hunting begin.

Alcoa (AA) kicked us off this week with a swing and a miss.  They posted a loss of $0.59… much bigger than most analysts expected.  The stock opened higher, traded lower, then closed flat… talk about a noncommittal market action.

Sun walked away from IBM’s takeover bid, now the management is under fire from shareholders… can it be long before the two merger partners re-enter talks?  Is Cisco waiting in the wings… only time will tell.

RIMM knocked the cover off the ball this week… earnings were up and the stock jumped 20%.  Might this be an early sign of tech leading the market higher?

Did anyone notice the transportation stocks, like railroads and airlines, jumped on the recent upward momentum?  Interesting group to lead the markets.

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.

  REG July 2009 $20 PUTS (REGSD)
Last week we rolled out a new trade.  We were betting the Commercial Real Estate Market was going to fall further… instead, we got a big marketwide rally.  This drove REG up through both of our resistance levels.  This market volatility is a killer.  Most of you probably exited this trade as we whipsawed through the resistance lines… probably a smart move.  However, I still feel like the fundamental reasons behind the trade are still in place.  If you happen to still own this (and you like being really aggressive) you might give this trade some time to develop.

  GE June 2009 $11 CALLS (GEWFI)
GE traded above 11 again this week, which was great news.  We’re now well above the 50-day moving average on the stock, and that will hopefully provide some support and help us move higher.  We have lots of time on this trade so aggressive traders hold tight.  Resistance levels will be at $11 and $13.75.  Support levels will be at $8.25 and $7.

  ORCL June 2009 $19 CALLS (ORQFT )
Earlier this week we traded above 19, putting our option “in-the-money”!  News of the IBM – SUN tie drove some of the tech stocks higher.  Our options are up and doing well.  Again, give this trade more time.

Parting Shots…

Pain From The Last Trade

I received a number of questions from new subscribers about the last trade.  Some were surprised how quickly they entered and exited the position.  Others were concerned about getting stopped out.

Let me first say this… that trade wasn’t normal.

Really, no trade is normal, but the Regency trade was particularly painful.  We’re trying to capture gains from some of the volatile stocks out there.  As you know, we use lots of fundamental research to identify trading recommendations.  This was an instance where fundamental analysis and the market clearly clashed.  Sometimes the market cooperates, and sometimes it doesn’t.

Regency is a good learning experience for everyone.  This was one of those instances where the market moved very quickly against us.  Trying to identify these sudden moves is nearly impossible.

However, this is a good reason why we set up exit strategies prior to entering a trade. When the stock jumped through both resistance levels, many traders were able to exit quickly and conserve capital for the next trade.

By taking quick action, we were able to cut our losses before getting totally wiped out.

Now, I will say this about the trade… I still believe the fundamentals are pointing to problems in the commercial real estate market.  Some really aggressive people might still hold this option.  For the rest of us, one further bit of wisdom… “Don’t fight the tape!”

Category: EOT Update

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