EOT Position Update – July 8, 2015
Market Snapshot
I took my family white water rafting down the Colorado River near Glenwood Springs, Colorado over the Fourth of July weekend. It was the first time my wife and I had taken our three boys rafting.
Thankfully, we had a great guide that told us about all of interesting stuff along the way. But more importantly, he steered us through the rough waters and instructed us when we needed to paddle forward, backward, or just sit back and let the river do the work.
His knowledge of the river, physical conditioning, and the technical understanding of how to manipulate our raft turned a potentially dangerous situation into an exciting and worthwhile adventure for my family.
It’s amazing how much power and intensity the water carries as it flows down the mountain. It reminds me of the financial markets…
No individual person or raft can change the direction of the river or the financial markets. But a good guide can help you manage the threats and put you in the right situation to make your investing efforts worthwhile.
There’s no doubt that the financial markets hit some white water when the Prime Minister of Greece surprised the markets with a referendum vote. Investors that own anything but cash saw those asset prices crushed over the last few weeks.
Not surprisingly, the latest AAII Investor Sentiment Survey shows an increase in bearish sentiment. According to AAII, the number of bearish investors shot up 13.4% last week to 35.1%.
I don’t see investor sentiment changing until Greece and the FOMC interest rate decision becomes more certain. In other words, there’s no reason for the S&P 500 to rip higher in the short term.
Until then, we’ll likely see more of the same lackluster performance and lack of bullish or bearish conviction.
Through it all, the S&P 500 has remained mired in the trading range that has dominated the index for months on end. However, the recent pullback has sent the price of several sector ETFs below key resistance levels. This could be the start of a much bigger price correction for the S&P 500.
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.
LUV August 21st 2015 $36 Calls
LUV reported June traffic that shows solid growth in capacity, passenger miles, and load factor. But the report about a Justice Department investigation into airline collusion continues to be a headwind for airlines stocks. Aggressive traders can continue holding. Resistance is at $38.25 and $40.00. The next support is at $30.00.
TAN July 17th 2015 $45 Calls
TAN has crashed lower over the last week. The main culprits have been Greece and oil prices. Investors are selling risky momentum stocks like solar stocks in the wake of Greece’s referendum vote. They also sold oil… the drop in oil prices furthered the selloff in solar stocks. The link between demand for oil and solar energy is a bit nonsensical to me. The two energy sources don’t compete on any level so the supply and price of oil doesn’t have a direct impact of demand for solar. Yet, there’s no denying that the last few times oil prices have dropped there has been a corresponding selloff in solar stocks. What’s more, the market makers continue to play games with the bid/ask of the options on TAN. Hold onto these options to see if we can unload them at a better price before expiration.
GDDY August 21st 2015 $24 Puts
GDDY has fallen off a cliff over the last few weeks. At a recent price of $26.08, it’s now 21% below the 52-week high and even 3% below where we recommended buying puts on it. This stock was going up based on the greater fool theory. The price action over the last few weeks is what happens where there aren’t any more fools to buy the stock. The value of our put option has bounced back nicely. Aggressive traders still have plenty of time for this stock to crash lower before the option expires.
Category: EOT Update
