| December 10, 2014

December 10, 2014

Market Snapshot

The typical year-end rally known as the Santa Claus rally has yet to materialize.

The S&P 500 reached an all-time high of 2,079 last week.  But the large cap index has been relatively flat since Thanksgiving.  And after today’s big losses, the large cap index is now more than 2% off those highs.

What’s wrong with the stock market?

In a word… oil.

Oil prices are dropping like a rock.  WTIC oil prices hit $62.25 today.  That’s the lowest price in more than five years.

The drop in oil prices is crushing energy stocks.  It’s also hurting the banks and junk bond market that have financed much of the US oil industry expansion.

So, while cheap oil is driving down the cost of energy for consumers, it’s playing havoc with a large swath of the US economy that’s dependent on higher oil prices.

At this point, it’s unclear whether the benefits of lower oil prices to consumers will outweigh the negative impact the lower prices will have on these oil dependent companies.

One thing’s for sure, portfolio managers are using the opportunity to do some end of year window dressing.  They are buying some of the best performing stocks so they have them in their portfolio at the end of the year and they are selling poor performing stocks so they don’t have to explain why the ever owned these stinkers.

It’s also the time of year that investors do tax loss selling.  And with energy stocks, the biggest loser this year, there’s sure to be even more selling as investors harvest these losses.

Nevertheless, large cap US stocks are still having a solid year.  The S&P 500 is still up more than 13% this year.

In short, this is a great market for our call option strategy.  There will be opportunities to profit with call options as well as put options.  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.

WWWW January 16th 2015 $17.50 Puts
WWWW is sitting at technical resistance from the downtrend.  Yesterday’s failed breakout should set the stage for the next leg lower.  Resistance is at $19.00 and $20.00.  Support is at $15.00 and $14.00.

KATE January 16th 2015 $32 Calls
KATE’s bullish reversal has faded over the last week.  But the bullish inverse head and shoulders pattern is still intact.  What’s more, this specialty retailer is poised for a strong holiday shopping season.  Look for KATE to make the next leg higher in short order.  Resistance is at $33.00 and $36.00.  Support is at $27.50 and $25.00.

GLOG February 20th 2015 $20 Calls
GLOG continues to be volatile as falling oil prices play havoc with energy stocks.  I believe GLOG has been unfairly lumped in with other energy stocks.  This company’s growth isn’t in jeopardy due to falling oil prices.  Continue holding.  Resistance is at $24.00 and $28.00.  Support is at $14.00 and $13.00.

Category: EOT Update

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