EOT position update August 20, 2014

| August 20, 2014

August 20, 2014

Market Snapshot

The Fed released the minutes from their July meeting today.  And the market didn’t like what the Fed had to say.

In short, the Fed is discussing the possibility of raising interest rates sooner than expected.

Many see these minutes as the first time the Fed has moved away from their very accommodative and dovish bias.  The mere mention of the Fed having a discussion about tightening monetary policy sooner than they had forecast is a sign that the committee is becoming less accommodative and more hawkish.

But in reality, nothing has changed.

The Fed crafts their monetary policy based on economic data.  And the recent data about the labor market has been better than they anticipated… so it only makes sense that they incorporate this new information.

Keep in mind that it’s not just about the unemployment rate, job openings, and jobless claims.  It’s about wage growth too… and so far the improvement in the labor market hasn’t translated into higher wages.

Until this key component of the labor market begins to move higher, there’s reason to believe there is enough slack to prevent the Fed from accelerating the pace of monetary tightening.

And it’s not such a bad thing if the Fed’s in position to raise interest rates sooner than expected.  That means the economy is doing better than expected.  A strong economy will have a bigger impact on stock performance than the Fed marginally raising interest rates.

What’s more, it’s nothing more than a myth that rising interest rates hurt the stock market’s performance.  Stocks can and will go up at the same time as interest rates.

In fact, there are very few times in history where stocks have underperformed when the Fed begins to raise interest rates.

In other words, the Fed minutes are nothing more than more noise in the market, along with the geopolitical conflicts and naysayers that have problem with the stock market being at record highs.  News Flash – if the economy is growing, then the markets should be at record highs most of the time!

Here’s the bottom line… the economy is improving, earnings growth is strong, the labor market is improving, and stocks are in a strong uptrend.  That’s a recipe for more upside.

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.

BDBD December 19th 2014 $12.50 Calls
BDBD is our newest trade.  This company is in a great position to realize much better than expected growth in the second half of the year.  This one may take a little bit longer than normal to play out.  But I’m expecting big things from BDBD.  Resistance is at $15.00 and $17.50.  Support is at $12.00 and $11.00.

ADI September 19th 2014 $50 Calls
ADI has been moving steadily higher over the last few weeks.  The stock is now up 3.8% from when our trade alert went out.  And our option hit a new high of $2.50 today.  That’s a solid 61% gain… but there’s still room for ADI to run.  Continue holding… Resistance is at $53.00 and $55.00.  Support is at $48.00 and $47.00.

HIMX September 2014 $7 Calls
HIMX is in consolidation mode after a nice rally after they released their quarterly earnings.  The good news is the stock is holding right at the recent highs.  Continue holding for the next leg higher.  Support is at $5.75 and $5.00.  Resistance is at $9.00 and $11.00.

Category: EOT Update

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