EOT Position Update – July 5, 2012

| July 5, 2012

July 5, 2012

Market Snapshot

I hope everyone had a great Independence Day yesterday!

But now it’s back to reality as the stock market reopens.

If you haven’t seen, this push upward really started last week.

Despite a very hard reversal to the downside in Europe on the European Central Bank’s rate cut news, the US markets are still holding up relatively well.

What’s very interesting is it appears that small-caps are showing good relative strength.  And that could indicate the market might be starting to turn a corner.

Now, don’t get me wrong, there’s still a lot of trouble out there.

But here’s the good news…

Just today, the primarily catalyst seems to be the better-than-expected ADP and weekly unemployment claims reports.  In turn, this prompted Goldman Sachs to raise its expectations for Friday’s jobs report to 125,000 from 75,000.

Apparently the market prefers better jobs data than another QE3 catalyst.

In addition, retail sales were mixed, but there’s certainly some dip-buying support in the large cap retailers.  And this is also lending support to the S&P 500.

However, the question remains, are we going to move higher or are we stuck in a range from which there’s no return?

The answer… both.  I think it’s going to be a tug-of-war with an upside bias.

This is how it works…

After sharp run-ups and global announcements of easing, many investors who are on the sidelines start to try to put capital to work.

The dip-buyers come in aggressively and give the short sellers fits as they eye the poor action in Europe.

And it’s this recent action that has created many extended and overbought conditions.

What’s more, this makes new entry points very tough.

Bottom line…

I think the market needs some consolidation but as we have seen so often over the last few years, when one of these V-shaped bounces starts, there aren’t enough easy buy points.

And that’s why we’re going to remain cautious while looking to get in on some names at favorable entry levels.

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.

  CSCO August 2012 $16 Calls
Cisco Systems continues to hold up very well in this choppy market.  Our call options are right at breakeven since our recommendation.  If the market continues its upside behavior, CSCO will certainly follow suit.  And this will give us an opportunity for large gains.  For now, CSCO is a hold.  Remember, we want CSCO to move higher. Resistance is at $18 and $20, while support is at $15.50 and again at $14.75.

  SCHW July 2012 $12 Calls
Schwab has been acting exactly like I predicted.  Moving right alongside the banking sector.  And it has paid off.  Schwab is up 66% since our recommendation.  SCHW has held up so well in this uncertain environment.  And don’t forget, if the banking sector jumps, SCHW will reap the rewards.  For now, we’re going to continue holding these options for larger gains.  Remember, we want this stock to rise in value. Resistance is at $13.20 and $13.60, while support is at $11.70 and again at $11.20.

Category: EOT Update

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