EOT Position Update – August 26, 2015
Market Snapshot
All hell broke loose in the stock market over the last week. Looking back, it’s not hard to see how we arrived at this point.
A weak global economy, over-supply of oil, and slowing earnings growth in the US are serious headwinds for stocks. The US earnings situation is made worse by falling worker productivity and the lack of investment in future growth by US companies.
Those points were offset by low interest rates, M & A activity, and a mountain of stock buybacks that kept earnings growth high despite the lack of revenue growth.
Last week the slow summer trading tumbled into more aggressive selling and profit taking. This triggered a break below the critical technical support level of the 200-day moving average. All of the investors that had been sitting on the fence jumped off and out of the market quickly after that.
Needless to say, there has been significant damage to the technical setup of the S&P 500 as well as the bullish market psychology. However, it remains to be seen if investors will buy the dip or move to the sidelines.
Many investors will want to see some stabilization in the key elements that triggered the market correction… namely oil, China, currency volatility, and junk bonds.
Thankfully the S&P 500 has broken out of the trading range that has dominated the price action for months. My initial reaction is to treat this like the many failed breakouts that preceded this one…
In other words, the trade on GPRO that I rolled out today is based on the S&P 500 returning to its recent trading range. But there will be opportunities on the downside as well… I’m hoping that the markets bounce a little so we can initiate new bearish positions at better prices.
Let’s move onto the updates…
Position Updates
Just a quick note: Remember, we won’t update every open position every week. We try to focus on the positions that have some significant news or price movement.
GRPO October 16th 2015 $52.50 Calls
GPRO is a new trade we rolled out today. This high flying momentum growth stock has been sold off hard in the last few weeks. This selloff is overdone for a company that actually has revenue and earnings growth. Grab your call options up to $2.20 if you haven’t already done so.
NTAP September 21st 2015 $30 Puts
It was a wise move for conservative traders to lock in their 40% gain ahead of NTAP’s latest earnings. Their new CEO spun a nice story that helped lift the stock off the recent lows. The stock bounced up to resistance around $32.50 before it came crashing back down in the marketwide selloff that hit the markets over the last week. Our put option reached a high of $1.66… that’s a 59% gain from where we recommended buying it. Aggressive traders can continue holding in anticipation of lower stock prices ahead for this troubled tech stock.
Category: EOT Update
