EOT Position Update – July 29, 2015
Market Snapshot
I saw an interesting statistic the other day that really sums up the stock market performance this year. The Dow Jones Industrial Average has crossed over between gains and losses a record setting 21 times in 2015… and it’s only July!
That’s a clear indication of indecisiveness among investors.
And the AAII Investor Sentiment Survey points in the same direction… 42% of all investors are neither bullish nor bearish on stocks over the next six months.
What’s more, in recent weeks, several key technical points have been getting worse. We’ve seen an increase in volatility, market breadth is weakening, and there’s a lack of bullish momentum.
To make matters worse, the strong US Dollar and slowing economic growth in China is really starting to hurt commodities and emerging markets.
The energy sector is reporting a 54% drop in year over year earnings. The massive drop in energy sector earnings will push the overall S&P 500 earnings down more than 2% from Q2 2014.
For all of the bad news, the S&P 500 is still range bound and hasn’t suffered a 10% correction in years. And there’s still reason to believe the S&P could break out to the upside.
One thing I’m seeing is companies outside of energy and with the majority of their revenue coming from inside the US are still growing earnings. The means the stronger US Dollar and lower oil prices are having a huge impact on the market performance.
What’s more, there’s a lot of dry powder. Companies are sitting on huge stockpiles of cash and debt is still cheap and easily accessible. It’s no wonder we are seeing M&A and private equity activity pick up over the last few months.
It’s hard to believe we’ll see a substantial correction in stocks as long as the US economy avoids slipping back into recession.
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 is moving in the right direction today as the company releases Windows 10. The company under their new CEO is charting a path that should continue to push the stock higher. Continue holding.
LUV August 21st 2015 $36 Calls
LUV delivered another record setting quarterly earnings report. This company is clearly firing on all cylinders right now. The initial reaction to the earnings announcement sent LUV soaring above our $38.25 resistance level. And our option soared 142% to a high of $2.97. Congratulations to everyone that locked in these impressive gains. We weren’t the only ones looking to take profits at that level. The profit taking sent LUV lower in the days following the earnings announcement. The next resistance is at $40.00.
GDDY August 21st 2015 $24 Puts
The price action on GDDY has been bearish over the last month. And I’m betting it is 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
