EOT Position Update – June 10, 2009

| June 10, 2009

June 10, 2009

Market Snapshot

It’s been a slow week for the markets.  It’s left me wondering if the old Wall Street adage, “Sell in May and go away” could be true this year.

Investors’ lack of conviction to move the market showed up in lower than average volume.  It’s left the Dow stuck in a 70 point trading range over the last week.

The big news is oil.

Crude oil prices continue to head higher.  Oil set new year-to-date highs of over $70 per barrel and gas prices have jumped more than $1 per gallon at the pump.

The fear is that higher oil and gas prices could derail the fledgling recovery.

Gas prices hit everyone’s pocketbook.  The stress of rising gas prices could put an end to rising consumer confidence.  And an unhappy consumer is one that isn’t spending money.

This has the potential to be disastrous for retail and consumer discretionary stocks.

Now for the trade 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.

  AAN November 2009 $40 CALLS (AANKH)
This is a new trade that just went out last Friday.  Everyone had an opportunity to buy at a great price.  See the trade alert for more details.  Resistance is $37 and $42. Support is at $28 and $26.25.

  MRO October 2009 $35 CALLS (MROJG)
The summer driving season is just getting underway.  Increased demand is already taking a toll on crude oil inventories.  Last week they fell by 4.4 million barrels.  I expect this trend to continue throughout the summer.  Our October calls should give us plenty of opportunities to profit as oil prices head higher over the summer.  Hold on for the next move higher.  Resistance is $35 and $40.  Support is at $26 and $25.25.

  INTC October 2009 $16 CALLS (NQJQ)
Intel got some good news this week.  Microsoft announced the release date for their new operating system, Windows 7, will be October 22, 2009.  This could be the catalyst getting consumers to purchase a new computer.  As usual, these new computers will be powered by Intel chips.  I expect to see interest in Intel’s shares prior to the release date.  Resistance is $16.80 and $19.  Support is at $14 and $12.75.

Parting Shots…


The word de-tarp has always been a good thing in my mind.  Just hearing those words remind me of numerous good times.

You see, de-tarp meant only one thing.  We were about to take the family boat out to the lake.  Part of taking care of the boat meant covering the boat with a tarp after every trip and removing it before the next one.  So we coined the term ‘de-tarping’ to describe the process.

But the financial meltdown of 2008 and the ensuing government bailout has changed the meaning forever.  This term now carries a distasteful connotation, which bothers me to no end.  (There’s nothing worse than having a government acronym infringe upon pleasant memories.)

This week, the first banks received the ‘ok’ to de-TARP their companies.  Ten banks will begin redeeming $68 billion worth of preferred equity the government currently owns.

These funds were rushed out just a few months ago under dire circumstances.  Have all of these risks faded away so quickly?  Surely not.  The question begging to be asked is, “Why the rush?”

One word, GREED.

The intent of TARP was twofold:  Ensure banks have sufficient capital to stay solvent and to continue to lend.  They don’t need these funds right now.  But should things take a turn for the worse, you can bet they’ll be back to ask for another bailout.

In the meantime, it’s getting in the way of executive bonuses.  They’ve essentially been capped as long as they hold TARP funds.

They’ll repay TARP now.  Big brother will be off their back.  Then they’re free to pay themselves fat bonuses.

Let’s not forget to mention, they can resume the risky and very lucrative behavior that got us into this mess in the first place.  If things go wrong, they can always go back for another bailout.  The US government’s already said they’re not going to let these companies fail.

In my opinion, letting these companies pay the TARP back too quickly is a mistake.  We could be entering a dangerous phase where ‘TARPing’ and ‘de-TARPing’ of financial institutions is commonplace.

Category: EOT Update

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