EOT Position Update – August 31, 2011
August 31, 2011
Market Snapshot
It’s another wild week for investors…
The truth is there’s a lot of uncertainty right now. As a result, stocks are gyrating up and down as investors adjust their expectations. But it’s hard to get a good read on how companies will perform as the economy slows.
Then Mother Nature got into the act as well.
In a matter of days, the East Coast was hit by the largest earthquake in more than a century and slammed by a hurricane for good measure! The good news is damage from the dual natural disasters was pretty mild.
What’s more, surviving the dual disasters last week seems to have sparked investor optimism. In fact, the S&P 500 has tacked on more than 4% since Monday.
But don’t get too excited…
At this point, we know economic growth in the developed world has nearly slowed to a standstill. And the risk the US slips into another recession is growing with each passing day.
And here’s the scariest part!
The way I see it there’s only one way the US avoids slipping into another recession. And that’s a revival of the housing industry.
Housing has a major impact on employment and ripples through many sectors of the economy. It’s the only thing that can bring the economy back from the brink. But so far there’s no indication of a revival in demand for housing or construction.
However, it’s not all bad news…
There’s one positive note from the latest Case-Schiller home price index. Rental vacancy rates are falling significantly and rents are rising in many areas of the country.
At this rate, it won’t be long before buying is more affordable than renting. And once we reach that tipping point, we could see the housing market rebound in a hurry.
Until then, I don’t see much reason for optimism.
One thing’s for sure, with so much uncertainty we’re bound to see more volatility. And that gives our options an opportunity to profit as stocks pop and drop.
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.
N October 2011 $25 Puts
N bounced higher along with the market over the last few days. Right now N is at resistance of the downtrend line off the July high. So, look for N to drop quickly back toward the recent lows. Remember, N doesn’t make any money yet so it’s only worth as much as investors are willing pay for potential earnings. And with global growth prospects dimming, we should see N move lower in a hurry. Continue holding… Resistance is at $31 and $35. Support is at $25 and $20.
BAS October 2011 $25 Calls
BAS is battling back. The stock’s moving higher with rising oil prices. The higher oil prices go the more their customers drill and the more money BAS makes. That’s why oil pushing back toward $90 per barrel is great news for BAS. Right now the stock is lagging behind the bullish rise in oil prices. But if oil prices remain above $80, BAS should rocket higher in short order. Continue holding BAS… Resistance is at $30 and $40. Support is at $20 and $15.
SBUX January 2012 $38 Calls
SBUX is looking good. Their growth plans are going full steam ahead. The latest bit of news is Starbucks will begin offering coffee in single-cup brewing K-Cups for Keurig coffee makers in November. That’s a potential $1 billion market they haven’t even begun to tap into… Clearly SBUX’s best days are still ahead. Continue holding for bigger gains. The next resistance is at $45. Support is at $32.50 and $30.
POT September 2011 $60 Calls
POT is frustrating me to say the least. Look, with corn, wheat, and soybean prices this high, Agribusiness companies know farmers can absorb higher prices. You better believe POT and other fertilizer companies are raising prices this year. And demand for their products is still expected to outpace supply. That means POT will be able to sell every bit of potash they can produce at higher prices. I don’t know about you, but that sounds like a recipe for blockbuster profits to me. Obviously POT has the potential to rocket higher at any moment, but as of right now there’s a complete disconnect between commodity prices and Agribusiness stocks. But I don’t believe this disconnect will last much longer. Continue holding for the next leg higher. The next resistance is at $70. Support is at $50 and $48.
Category: EOT Update
