EOT Position Update – June 17, 2009

| June 17, 2009

June 17, 2009

Market Snapshot

The markets have been pulling back this week.  It’s never easy to see hard earned gains disappear, but I’m actually encouraged by this market action.

First off, let me reiterate, pullbacks are a natural part of a trend.  I don’t care how strong the trend is, nothing goes straight up forever.  Pullbacks are a great opportunity to gauge the strength of a trend.  Technical analysis helps decipher what the pullback is saying.

Current market action is telling me the market is poised to move higher.  Why?

I’m looking at the moving averages, specifically the 200-day moving average.  As you know, it’s an important technical level I follow closely.  It often acts as a brick wall, stopping trends dead in their tracks.

The good news is the S&P 500 was able to close above this level on June 1st, the first time since December 2007.  Here’s the key, we’ve closed above it for 13 days since.  This technical level is now a support.  It should prevent stock prices from moving lower.

Take a look at this chart of the S&P 500.  You’ll see it’s pulled back to the 200-day moving average (the blue line).  But as expected, the 200-day moving average acted as support, pushing the market higher.


If the market moves below this support level, it would indicate a major change in market psychology.  The optimism of the last few months would have to give way to bearish pessimism.  And I just don’t see that happening.

That’s why I’m expecting the market to move higher from here.

Now for 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.

  AAN November 2009 $40 CALLS (AANKH)
Aaron’s has pulled back with the rest of the market this week.  We have plenty of time on this option, so don’t get jumpy.  The underlying fundamentals and technicals still look great.  Give this one some time.  Resistance at $37 and $42.  Support is at $28 and $26.25.

  MRO October 2009 $35 CALLS (MROJG)
Commodity stocks have been hit hard by the pullback.  But they’ve been the strongest part of the market for the last few months.  They should resume that role once the market starts moving higher again.  Resistance at $35 and $40.  Support is at $26 and $25.25.

  INTC October 2009 $16 CALLS (NQJQ)
Technology continues to be a leader.  The pullback this week didn’t hit the tech stocks as hard as the rest of the market.  They’ve been the first to start moving higher today, which is good news for our calls.  Resistance at $16.80 and $19.  Support is at $14 and $12.75.

Parting Shots…

Rules of the Road

Today, President Barack Obama spoke about financial regulation change.  His proposed changes are focused on modernizing our current depression era regulatory structure.

There’s no doubt changes need to be made.  Government regulation is supposed to prevent credit crises and financial meltdowns.  And the current system failed miserably.

First let me say, there’s some really good stuff in the proposal.  For instance, proposed changes to the credit derivatives and default swap markets are spot on.  They’ve evaded government oversight up to this point.  A new structure should eliminate much of the counterparty risk that turned them into financial ‘weapons of mass destruction’.

But, the proposed system falls short in some areas.

The separation of commercial banks and investment banks kept institutions running smoothly since the Great Depression.  But this bill fails to reinstate the legislation.

Instead, this bill seeks to create new government agencies and increase the scope of government regulation.  All that means is more government and a bigger bureaucracy.
And that’s no guarantee of a safer financial system.

Category: EOT Update

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