EOT position update July 9, 2014

| July 19, 2014

July 9, 2014

Market Snapshot

Stocks have enjoyed a nice move to the upside this year as the economy improves, interest rates remain low, corporate earnings are strong, and stock buybacks have expanded.

Coming into this week, investor risk appetite hadn’t changed much over the last few months.  Investors are positioning themselves for an upturn in economic growth.

And last week’s strong jobs data gave them even more reason to be bullish about the US economy.  June payrolls increased by 288,000 jobs and the unemployment rate ticked down to 6.1%.

Not surprisingly, investors continue to buy cyclical stocks that will benefit the most from a better economy.  And at the same time, they’ve been steering clear of defensive sectors.

The bullish momentum in cyclical stocks even spilled over and helped revive the bullishness in momentum stocks that had taken the brunt of the selloff earlier this year.

But the mood on Wall Street soured this week as traders resumed their posts after the long holiday weekend.  And sellers seemed to appear out of nowhere.

Out of the major averages, the tech heavy NASDAQ has been hit the hardest this week.  The drop comes after a 10% climb since mid-May.  And many of the momentum stocks that had enjoyed an even bigger bounce since mid-May sold off the hardest.

It appears that the short sellers that attacked the momentum stocks for huge profits earlier this year are once again taking aim at momentum stocks.

The good news is the selling came to an abrupt end today.  And all of the major averages have held at technical support zones.

What’s more, the release of the Fed minutes today put to rest the fear that interest rates could begin rising sooner than expected.  The Fed is holding steady on their inflation expectations and doesn’t see interest rates rising until the middle of next year.

At this point, the two day selloff seems to have ended as quickly as it began.  I would be surprised if the S&P 500 and other major averages don’t hold at these technical levels and begin moving higher from here.  In fact, the quick pullback looks like a good opportunity to roll out a new trade… so keep an eye on your inbox for a new trade later this week.

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.

P August 2014 $30 Calls
P was my play on the resurgence of momentum stocks.  Unfortunately, momentum stocks have taken the brunt of the two day selloff this week.  This wasn’t entirely unexpected after such a rapid climb over the last few months.  It’s why I gave this option until August and set the support and resistance levels where I did. Nevertheless, the drop in P has slashed the value of our option in half.  If P can hold at the 50-day moving average, it should resume its uptrend going forward.  Continue holding.  Resistance is at $32.00 and $36.00.  Support is at $24.00 and $22.50.

TPLM October 2014 $12.50 Calls
TPLM tested and held the support zone created by the breakout to a new high earlier this week.  This is a good sign the consolidation is likely just a lull before it makes another move higher.  We have until October for TPLM to make its next move to the upside… continue holding.  Resistance is at $14.00 and $17.50.  Support is at $10.75 and $10.00.

HIMX September 2014 $7 Calls
HIMX is in a holding pattern as the company’s enormous upside potential deals with some short term headwinds.  The stock didn’t fair too badly through the two day selloff this week.  A little bit of good news could spark a quick rise for the share price. Continue holding… Support is at $5.75 and $5.00.  Resistance is at $9.00 and $11.00.

Category: EOT Update

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