EOT Position Update – June 15, 2011

| June 15, 2011

June 15, 2011

Market Snapshot

It’s getting ugly out there… The S&P 500 is already down six weeks in a row.  And with today’s massive selloff, we’re likely to see that streak extend to seven weeks.

Clearly, stocks are facing serious headwinds right now.

There is Greece’s debt crisis… The US national debt ceiling controversy… The end of QE2… $100 Oil… Weak housing market… Slow job growth… Emerging market inflation… And a laundry list of other problems that goes on and on.

With so much happening, it begs the question… What’s going to drive the markets’ next move?

In a word, growth.

The fate of the stock market rests with how fast the US and world economies grow.

I’m focusing on the leading indicators in order to gauge the speed of economic growth. These data points will give us the best indication of how fast (or slow) the world economy will grow in the months ahead.

Right now, economists are expecting US GDP to expand by 3.2% in the second half of the year.  If it does, then stocks should rebound from this weak patch and move higher in a hurry.  However, if growth comes up short of expectations we could see a major stock market correction.

And the truth is… the economic outlook stinks.

The long leading indicators I’m following show a cyclical slowdown across the entire US economy.  We’ll likely see this weakness show up in the short leading indicators over the next few weeks.

The media and most economists focus on the short leading indicators.  They tell us where the economy is going over the next few months.  And when these indicators slow, economists typically begin cutting their growth estimates.

No doubt about it, economists are going to begin cutting their second half GDP growth estimates soon.  And when they do, stocks are going to sink.

So buckle your seatbelts… it’s going to be a bumpy ride.

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.

  APKT August 2011 $60 Puts
APKT is down more than 8.5% since our trade alert went out last week.  As expected, our put options are moving higher.  They hit a peak gain of 51% today.  That’s great news… However, the best is yet to come.  Right now, investors are unloading risky growth stocks.  And APKT is one overvalued growth stock investors are fleeing in droves.  Continue holding for bigger gains ahead.  Resistance is at $80 and $85. Support is at $56 and $50.

  SBUX January 2012 $38 Calls
SBUX is hanging in there in the face of bearish market action.  The stock is holding in the trading range between $34.50 and $37.50.  Despite the weakening economic outlook, Starbucks is pushing ahead with their well laid out growth plans.  They just released their Android App.  It gives customers the “easiest way to pay” with smartphones running the Android operating system.  This is a perfect example of how SBUX is looking to new and interesting ways to fuel growth.  Continue holding for big gains ahead.  Resistance is at $40 and $45.  Support is at $32.50 and $30.

  POT September 2011 $60 Calls
POT is holding above the upward trending 200-day moving average.  The key technical support level should put a floor underneath the stock price.  I’m expecting agriculture stocks to remain strong despite weakness in the overall market.  Simply put, high grain prices are fueling a huge spending spree by farmers around the world.  Continue holding for bigger gains ahead.  Resistance is at $62.50 and $70.  Support is at $50 and $48.

  WMT June 2011 $55 Puts
WMT is plummeting.  Our option hit a peak gain of 120% today!  With our option expiring this Friday, it’s time to lock in your profits.  Go ahead and sell this option now to lock in this cool double.  Congratulations on a nice winner!

  WPRT October 2011 $30 Calls
WPRT is on the cutting edge of the ‘natural gas as a transportation fuel’ story.  I believe using natural gas to fuel large trucking fleets in the US is a key to America’s energy security.  Too bad politics and the oil lobby have a hammer lock on the key natural gas legislation.  So far the NAT GAS Act is having trouble gaining traction.  The good news is we still have four months until our options expire.  Hopefully we’ll see politicians get a clue and pass this important legislation sometime this summer. Resistance is at $30 and $35.  Support is at $20 and $17.50.

Category: EOT Update

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