EOT Position Update – August 27, 2008

| August 27, 2008

August 27, 2008

Market Snapshot

The Dow Jones Industrial Average is still hovering around 11,450.

You know, it’s interesting.  If you listen to the media, watch TV, and read newspapers, you’d think all hell has broken loose in the stock market.  Everyday, all we hear about is rising costs, credit crunches, foreclosures, the price of oil and on and on.

But if you really look closely at the market, it hasn’t done anything in the last couple of months.  On June 26th, the DOW was at 11,453.  Today on August 27th, it’s at almost the exact same point.

While the market seems to move 100-200 points everyday, it’s not really moving in any one direction.  If you watch the headlines however, you get a different story.  You see headlines like “Dow Plummets 250 points” or “Stocks Sink on Housing Data”.

So, having watched the markets for quite a while, what does this scenario usually tell us?  You have a situation where there’s an endless stream of bad news, yet the market is holding its own.  Based on past corrections and bear markets, that usually means we’re closer to a bottom than a top.

I guess we’ll have to wait and see.

Now for the trade updates.

Position Updates

 JCP January 2009 $30 PUTS (JCPMF)
Like the overall market, JCP didn’t really do much over the last week.  The stock dropped last week a bit before rallying to close to where we got in.  By now everyone should have had time to take a position.  Support is at $35 and $30.  Resistance will be at $45 and $48.

 CSCO January 2009 $27.50 Calls (CYQAY)
CSCO is on the acquisition trail again.  They bought PostPath today for $215 million.  CSCO rallied on the news which is a very positive sign.

Here’s what Cisco had to say about the purchase, “[it] complements our strategy to develop an integrated collaboration platform designed for how we work today and into the future, providing real productivity gains and a more satisfying user experience.

Whatever that means.  Anyway, support is at $22.50 and $21.  Resistance will be at $27 and $28.75.

  CLHB January 2009 $95 Calls (QPBAS)
CLHB hit an all-time high today of $82.47 as of this writing.  The stock is up over 4% today alone.  We had to wait a few weeks but I think this stock is gearing up for a major run.  Resistance will be found near $85 and $90.  Support will be at $72 and $68.

  ROST November 2008 $42.50 Calls (REQKT)
ROST shares have been inching up over the last 4 weeks.  It’s run into some major resistance at $40 and will hopefully breakthrough again.  I know most of you took profits on this one earlier in the month, but for those of you still holding, I would only give it another month or so.  Resistance is 40 and 45. Support levels are 34 and 31.50.

Parting Shots…

Today I want to revisit a couple of subscriber questions we’ve received lately about Support and Resistance.  I covered these a couple of months ago, but I want to “reprint” them today as we have a lot of new subscribers who are curious as to how to use these important pieces of information…

New subscriber questions, the topic is Support and Resistance.

As a subscriber to Elite Option Trader you’ve no doubt seen me mention Support and Resistance levels on our trade alerts.  These are technical trading terms that some texts devote entire chapters.  Here’s a brief overview.

One subscriber asks: What are support and resistance levels?

Support and resistance levels are used by technical analysts to identify certain price points.  These price points or levels are where a stock might stop moving higher (Resistance) or stop moving lower (Support).

For example, with a support level the theory is buying pressure (demand) overcomes the selling pressure (supply) at a particular price.  This prevents the stock from falling below that price level.

The opposite is true for resistance.  With resistance levels technical analysts identify where there might be more sellers than buyers.  This prevents the price from moving higher.

Another subscriber question: How do I use support and resistance levels? What am I supposed to do?

We provide support and resistance levels for every trade alert.  You are free to use them in any way you want.  You can even ignore them – don’t worry my feelings won’t be hurt.

I’m trying to give you some idea of where the stock might trade to (either up or down).  When these support or resistance levels are triggered, that means you may want to consider selling your options.  These levels help you to take profits when things are moving in the right direction, and minimize your losses when they aren’t.

Remember, a sell discipline is unique to every trader.  No two traders are going to look at a trade the same way.  Some will take on more risk – and hope to hit home runs. Others are more conservative looking for smaller risks and rewards.

I strongly recommend you review the Elite Option Trader Operating Manual.  If you don’t have it, you can download your free copy at the website.  Go back to pages 10, 11, and 12 where we discuss selling disciplines.  Hopefully you’ll get a better idea on how to incorporate support and resistance levels into your unique sell discipline.

Category: EOT Update

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