EOT Position Update – February 10, 2010
February 10, 2010
Market Snapshot
Can you feel it? Fear is back… and it’s controlling the markets.
Fear has crept back into investors and traders every thought. This bout of fear was triggered by downgrades on a few European countries sovereign debt.
There’s no doubt it’s a complex situation. But the bottom line is investors are afraid of a repeat of the 2008 credit crisis. As a result, investors are dumping riskier investments for safe havens like the US Dollar.
The fear over EuroZone debt has investors looking at everything from a glass half empty point of view. Now the uncertainty over government regulation, Fed interest rate hikes, and unemployment have gone from back page news to frightening headlines.
But don’t get too comfortable because fear could flip back to greed just as easily. And when it does, we could see the market move higher quickly.
Right now the problem is the fundamentals and the technicals are like oil and water. Try as you might, they stubbornly refuse to combine. It’s making it difficult to determine where the market is going in the short term.
The fundamental picture is getting stronger.
There are numerous ways to measure the economic recovery. As I see it, they’re indicating the pace of the recovery is holding steady or getting stronger.
The most encouraging sign is the recent uptick in business spending on technology. It looks like the beginning of a new (very profitable) cycle. As businesses upgrade hardware and software over the next few years, it will be a major driver of economic activity.
I’m also encouraged by the jobs picture. I know it’s important to get people back to work ASAP. We need low unemployment in order for our consumer-based economy to recover. But it’s also important to remember unemployment is a lagging indicator. For now it’s ok as long as job losses don’t start to accelerate.
On the other hand, technical indicators are showing weakness.
Remember, technical analysis is really a measure of investors’ sentiment toward the fundamentals. And right now the support lines of the uptrend and moving averages are under attack.
There’s no doubt we’re in the midst of a correction (a long overdue correction as I see it). We’ve already seen three months worth of gains get wiped out in a few weeks. But I’m encouraged to see the S&P 500 holding at a key support level.
What we need to keep an eye on is fear turning back to greed. Until the market tells us where it’s heading next, we’ll cautiously look for new opportunities to profit.
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.
AEM May 2010 $45 PUTS
AEM is our most recent trade we rolled out last week. This trade’s designed to profit from the short term volatility in the US Dollar caused by EuroZone debt fears. If this situation continues to escalate, the US Dollar will rally while stocks and gold prices fall. Hold tight while this situation plays out. Resistance is at $60 and $65. Support is at $45 and $42.
SWKS May 2010 $15 CALLS
SWKS has bounced off of support and is moving higher. The fundamental picture for SWKS looks great. If market sentiment improves, SWKS should rocket toward our resistance levels. Hold tight, we still have plenty of time for SWKS to build on its recent momentum. Resistance is at $16.50 and $18. Support is at $12.25 and $11.50.
LVS March 2010 $19 CALLS
LVS is trading along the support line of the downtrend it broke through in early January. Now the dominant uptrend and the downtrend are on a collision course. We should see LVS breakout from this consolidation pattern in the next couple of weeks. Since the uptrend is the longer dominant trend… odds are the breakout will be to the upside. Hold tight for now. Resistance is at $21 and $25. Support is at $15 and $13.
CSCO April 2010 $24 CALLS
CSCO delivered an outstanding quarterly earnings report last week. Management also spoke highly about the current business environment and their outlook for the rest of 2010. Technically, CSCO is building momentum after rebounding off of support at $25.50. Now it’s back to resistance of the downtrend. A push through the downtrend should set the stage for CSCO to make another run at the previous highs around $25. Resistance is at $26 and $29. The next support is at $20.
NVDA March 2010 $15 CALLS (UVACC)
NVDA is consolidating between $16 and $17. Support at the uptrend from the November low is holding. As the supporting uptrend converges with the area of consolidation, a breakout to the upside is likely. Aggressive traders should hold tight for the next move. The next resistance is at $20. Support is at $13 and $12.
SBUX April 2010 $22 CALLS (SSUDV)
SBUX is consolidating around an area of support at $22. Aggressive traders should hold tight. We still have plenty of time for the market and SBUX to regain momentum. The next resistance is at $26. Support is at $18.50 and $17.
MCRS March 2010 $30 CALLS (MFKCF)
MCRS has pulled back to support of the 200-day moving average. Management reported earnings that beat analyst estimates by a few cents last week. The reality is MCRS’ momentum is gone. MCRS blew through our first resistance and came up short of our aggressive target by $0.50. Now there are several layers of overhead resistance to get back to the highs. Aggressive traders should start looking for a good exit point over the next few weeks. The next resistance is $33. Support is at $25 and $22.50.
***Editors Note***
Option Symbology is set to change by February 12, 2010. That means a new method for identifying options is currently being put in place. Some of you will see it before others but February 12 is the cut off for all firms to be in compliance.
What does this mean for you? The current five character option ticker will be a thing of the past. It’s being replaced by a new option ticker format.
Here’s what it breaks down to.
The new option ticker will be expressed as: Root + Expiration + Strike + Type.
Root = the ticker symbol of the underlying stock.
Expiration = the expiration date of the option.
Strike = the strike price of the option.
Type = Call or Put.
The good news is we already give you all of the information for the new ticker in the trade alert. The bad news is the new ticker is going to be longer. And to top it off, individual brokerage firms may generate their own tickers for use only on their platform. So make sure to check with your broker.
Category: EOT Update
