EOT Position Update – December 2, 2009

December 2, 2009

*** Editor’s Note ***  I hope you enjoyed your Thanksgiving holiday.  We’ll be at a corporate offsite event tomorrow through December 7th, so keep an eye out for a new trade next week.

Market Snapshot

The weak dollar – strong stock and commodity dynamic continues to be the dominant force in the market.

Dubai reminded us the world economy is still on shaky ground.  Rumors of Dubai defaulting on $60 billion worth of debt set a shockwave through the markets.

Because the news hit during a holiday shortened week only amplified the market reaction.

Now it appears the whole thing was “misunderstood” according to government officials.  If nothing else, this serves as a reminder the markets are vulnerable to market shocks.

Commercial real estate continues to be a source of new fear.

Commercial real estate was overbuilt during the last real estate boom.  The over-building happened everywhere from the US to Europe and even Asia.

Now, many land developers are sitting on vacant office, retail, industrial, and warehouse space.  They never intended on owning the property this long.  Luckily the last boom gave the industry a sizeable cash cushion.  They’re able to stay liquid longer than individual home owners.  That’s why we haven’t seen the same level of defaults on commercial real estate loans as we have in the residential real estate loans… yet.

But their cash isn’t going to last forever.

Eventually, commercial developers need to start selling and leasing these properties. That’s a tall order.

Unfortunately, the only solution to the oversupply of commercial properties is economic growth.  And even with growth, it will take years to work off the oversupply.  The biggest losers in a commercial real estate meltdown will be regional banks.  The regional banks financed a large portion of the construction loans at risk.

All we can hope for is solid economic growth to solve the problem.

Outside of the risk of a commercial real estate blowup, the economic recovery appears to be rolling along just fine.  As long as the economic data’s improving, there’s no reason to think the market’s going anywhere but up.

Now for 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.

  SBUX Apr 2010 $22 CALLS (SSUDV)
SBUX is off to a good start.  Our option is up 25% in the first week!  The chart looks promising too.  The stock is consolidating between support of the 20-day moving average and resistance of the previous high.  We’ll often see a breakout from consolidation patterns like this.  Hold tight for now.  Resistance is at $23.50 and $26. Support is at $18.50 and $17.

  MOT Apr 2010 $10 CALLS (MOTDB)
MOT’s chart is set up for a run higher.  The recent pullback in MOT shares came to an end a few days ago at about $8.  Now the stock is rebounding from oversold levels. We still have plenty of time on this trade.  Hold tight for now.  Resistance is at $10 and $12.  Support is at $7.75 and $7.

  MCRS Mar 2010 $30 CALLS (MFKCF)
MCRS looks like the beginning of a new uptrend is developing.  We have a classic technical signal of a new uptrend as the 20-day moving average crossed the longer term 50-day moving average.  Hold tight for now.  Resistance is at $30.50 and $33. Support is at $25 and $22.50.

  TMO Dec 2010 $45 CALLS (TMOLI)
TMO’s made another push through our first resistance level.  Our options are up 45% from where we recommended them.  Only aggressive traders should still be holding these options.  But if you’re still holding them, you may want to start looking to exit before they expire in a few weeks.  The next resistance is at and $50.  Support is at $41.50 and $38.50.

  MMM Jan 2010 $75 CALLS (MMMAO)
3M’s continues riding support of its 20-day moving average, 50-day moving average, and its uptrend higher.  Look for a breakout above the previous high around $79 to send our option to our next resistance level.  Aggressive traders should hold out for the next leg higher.  The next resistance is at $80.  Support is at $65 and $60.

Category: EOT Update