EOT Position Update – July 22, 2015

| July 22, 2015

Market Snapshot

It’s been an interesting summer for the financial markets, to say the least.  There has been more than enough noise from China and Europe to last a lifetime.

Thankfully Greece has agreed to their creditors’ demands.  They’ve once again kicked the can far enough down the road that it’s no longer impacting the financial markets.

And fears that a bubble in Chinese stocks was about to burst have been put to bed as well.  The Chinese government stepped in to stabilize their stock markets.

In short, the Chinese government isn’t about to let the stock market fall apart.  They’re already dealing with issues from slowing economic growth and problems in their real estate markets.

As a result, investors are shifting their focus back to the US economic data and earnings season.

Last week was a mixed bag for economic data.

For instance, there were fewer jobless claims than expected, housings starts beat expectations, and industrial production and capacity utilization continued to accelerate faster than expected.

But at the same time, the US consumer is showing signs of weakness.  Economists were expecting the four month run of retail sales growth to continue in June.

But instead, retail sales unexpectedly dropped.  The data was disappointing even when stripping out the volatile auto sales numbers.  Experts were expecting retail sales to grow 0.5% in June but they actually came in 0.1% lower than what they spent in the previous month.

There are clearly some crosswinds in the US economic data that are creating uncertainty.  And the earnings reports didn’t do much to change that opinion.

We’ve seen strong earnings from internet companies like Google $GOOG and Netflix $NFLX.  There was also some good news for the big banks like $BAC, $C, and $JPM that reported earnings last week.

But Intel $INTC gave disappointing guidance, even though it wasn’t as bad as some had expected.  And anything tied to an oil field is still looking for a bottom.

As a result, the S&P 500 is back near the high end of its trading range near 2,130.

S&P 500

One thing you’ll notice is that the S&P recently tested support of the 200-day moving average.  Right now, the 200-day MA is the most important support.  And the 2,130 resistance is the most important resistance level for the large cap index.

A breakout through one of these technical levels will likely bring more traders into the market.  We could see bullish or bearish activity accelerate quickly depending on which one of these technical levels gives way first.

Recent history suggests that we’re more likely to see a bullish breakout in the near future.

Let’s move onto the updates…


Position Updates

Just a quick note:  Remember, we won’t update every open position every week.  We try to focus on the positions that have some significant news or price movement.

 MSFT August 21st 2015 $47 Calls

MSFT reported EPS of 62 cents per share on $22.2 billion in revenue.  They also grew their important cloud, enterprise, and search businesses.  But they also decided it was time to write off their poor investment in Nokia at the end of their fiscal year.  It was a $7.6 billion write down for a company they bought for $9 billion just two years ago.  The write down swung the quarter to a $3.2 billion loss.  MSFT’s new CEO has the company on the right track… and the stock has responded by reaching its highest level since the 1990s.  There’s still four weeks until these options expire.  I think we’ll see investors push the stock higher during that time.  Continue holding.

 LUV August 21st 2015 $36 Calls

LUV is working its way higher over the last week.  The fears of growing capacity too fast and a DOJ investigation into the airlines industry to restrict capacity growth are fading.  LUV will report earnings tomorrow.  The company is coming off of record earnings in Q1.  Keep an eye on this stock to see how our option reacts to the earnings announcement.  Resistance is at $38.25 and $40.00.  The next support is at $30.00.

GDDY August 21st 2015 $24 Puts

The price action on GDDY has been bearish over the last month.  And I’m betting it’s going to get even worse.  The company will report earnings on August 5th.  Aggressive traders should keep an eye on this date as the next big catalyst for our put option.

Category: EOT Update

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