EOT Position Update – August 3, 2011

| September 3, 2011

August 3, 2011

Market Snapshot

Politicians in DC finally worked out a deal to raise the debt ceiling.  And just in the nick of time too.  Now the US government isn’t going to default on their debts.  Hooray!

Surely the markets are going to rally now that crisis has been averted.  Not so fast… Poor economic data just threw a bucket of ice water in investors’ faces.

A weak reading on the ISM manufacturing index got the ball rolling on Monday.  And the hits kept on coming with weaker than expected personal income and spending on Tuesday.

But that’s not all…

There’s also an ominous head and should pattern on the daily chart of the S&P 500. This pattern is a bearish reversal pattern.

I’m not going into all the details.  But the pattern was completed yesterday when the S&P 500 closed below 1,256.  As a result, we saw heavy selling from technical traders and computer trading systems programmed to watch for these chart patterns.

Not surprisingly, we saw a lot of panic selling today.  But then the market bounced back this afternoon.  And it actually finished the day with a small gain.  It was one wild day on Wall Street to say the least…

So where does that leave us?  Right back at square one…

Right now, stocks are clinging to support at the low end the trading range.  It’s a strongly entrenched range that’s held up for the majority of the year.  And until stocks breakout of the range in a convincing fashion, it will remain the dominant force in the markets.

The bottom line is the last few days were ugly for stocks but nothing really changed.

Stocks are still in a trading range.  And they’ll likely remain there until one of two things happens… economic growth accelerates and drives stocks higher or economic growth slows to the point of recession and stocks fall.

I’ll be keeping my eye on the leading indicators for the markets next move.  And the best part is… options give us the ability 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.

  SQM January 2012 $70 Calls
SQM is holding right at support of the upward trending price channel.  So, despite the recent volatility, SQM is holding onto its bullish momentum.  And they should… It’s a world class business with a real competitive advantage.  If the markets reverse their recent weakness, SQM should be out in front leading the way higher.  Hold tight for bigger gains ahead.  Resistance is at $70 and $80.  Support is at $62 and $56.

  BK January 2012 $27 Calls
BK is holding above the key support zone around $24.  As long as the $24 support level holds, I think BK will move higher over the days and weeks ahead.  The bottom line is the stock is cheap… And if financials regain any investor interest, BK could be a big winner.  Continue holding these call options… Resistance is at $28.50 and $30.50. Support is at $24 and $23.

  MAR January 2012 $37 Calls
MAR got routed over the last week. The hotel operator just couldn’t hold up in the face of overwhelmingly bearish investor sentiment.  The stock dipped below both of our support zones.  That’s our cue to sell.  Go ahead and close this trade if you haven’t already.

  APKT August 2011 $60 Puts
APKT is locked in a downward sloping price channel.  It has set a series of lower lows and lower highs over the last three months.  The latest fall sent the stock plunging below our $56 support zone.  Congratulations to everyone locking in gains of 83%! Aggressive traders may want to hold out for a bigger move.  The next support is at $50.

  STEC November 2011 $17 Puts
STEC tanked last week.  I sent out a special update on Friday… Our option hit a peak gain of 245%!  Again, congratulations to everyone on a successful trade.

Category: EOT Update

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