EOT Position Update – August 17, 2011
August 17, 2011
Market Snapshot
After weeks of panic and fear, investors are refocusing on the markets.
Predictably, economists and analysts are busy slashing their forecasts for GDP growth. According to the Wall Street Journal, economists now forecast US GDP growth of 1.6% this year. That’s a massive cut from their July forecast of 2.6% growth!
And if history is any guide, economists will overshoot to the downside.
Already 13% of the WSJ economists think the economy is in recession and 29% think the economy will be in recession by 2012.
In other words, be prepared to hear “double dip recession” a lot over the next few months.
Here’s the thing, I think stocks are already pricing in another recession. So, even if these gloom and doom economists are right, the downside risk to equities is small.
Don’t forget… there’s still no evidence the US economy is destined for another recession.
Right now, all we know for sure is economic growth is slowing. Once investors realize economists are overshooting to the downside, we’ll see stocks rebound quickly.
The way I look at it, there’s a lot more upside potential than downside risk in the market.
In fact, I think the S&P 500 will trade up to 1,250 in short order. And it could be back to 1,300 before it runs into heavy resistance.
And as you know, the best part about trading options is the opportunity to profit whether stocks are sinking or soaring!
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.
BAS October 2011 $25 Calls
BAS is off to a good start. As expected, energy stocks are quickly bouncing back from oversold conditions. What’s more, an analyst at Macquarie initiated coverage with an outperform rating today… that’s always a good sign. Continue holding for bigger gains ahead. Resistance is at $30 and $40. Support is at $20 and $15.
SBUX January 2012 $38 Calls
SBUX is bouncing back from the panic fueled selloff in a hurry. The bottom line is consumers aren’t giving up their coffee habits… even if they’re worried about the economy. Investors are realizing if Starbucks can grow in this environment, they should grow like gangbusters once consumer confidence picks up. Aggressive traders should continue holding for bigger gains ahead. The next resistance is at $45. Support is at $32.50 and $30.
POT September 2011 $60 Calls
POT is also bouncing back after the recent correction. The USDA just cut their estimates of the size of corn and soybean crops. With less supply, we should see grain prices move higher. That’s great news for POT. The more money farmers make, the more money they spend on fertilizers. I think POT is due for a big rally over the next month. Aggressive traders should continue holding for bigger gains ahead. The next resistance is at $70. Support is at $50 and $48.
WPRT October 2011 $30 Calls
WPRT hung tough throughout the market chaos over the last few weeks. No doubt about it, WPRT is a major player in the natural gas as an alternative transportation fuel business. They have the technology and the partnerships to make a killing as the best natural gas engine manufacturer in the world. If Congress starts talking about the NAT GAS Act when they get back from vacation, it could spark a big rally in all natural gas related stocks. Continue holding for the next leg higher. Resistance is at $30 and $35. Support is at $20 and $17.50.
Category: EOT Update
