EOT Position Update – June 22, 2011
June 22, 2011
Market Snapshot
Here it comes…
Federal Reserve Chairman Ben Bernanke took the stage today. As expected, the Fed chief’s comments sparked a selloff in stocks.
What did he say to cause such a reaction?
The same thing I’ve been talking about over the last few months… Slowing economic growth.
Up until today, Bernanke had maintained the US economy would grow at better than 3% in the second half of the year. But his revised estimate is GDP growth between 2.7% and 2.9%. Clearly, the markets didn’t like what they heard…
The problem is he’s still saying the slowdown is only temporary.
He thinks supply disruptions from Japan’s earthquake and the spike in oil prices are the main cause of the slowdown. And once these factors dissipate, growth will accelerate.
But he’s wrong…
In reality, the main cause is a peak in the business cycle. The slowdown in economic growth isn’t temporary. It’s cyclical…
His overly optimistic view is setting investors up to be disappointed by weak economic data in the coming weeks. When that happens, we’ll likely see more economists downgrade their forecasts. And that’s a recipe for lower stocks in the days and weeks ahead.
The truth is the markets’ short term outlook is ugly. The good news is we can profit from stocks whether they’re sinking or soaring!
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 in a solid downtrend. The quick move lower sent our put options soaring to a peak gain of 68%. However the stock did rally yesterday. But I’m not worried. This bounce looks like a short covering bounce as the stock approached the 200-day moving average. I think we’ll see the shorts come back in and send this overvalued tech stock down toward our support levels. 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 moving higher in a hurry. Over the last week, it shot from the low end of its trading range at $34.50 to the high end at $37.50. It’s good to see SBUX leading the way higher when the market’s going up. Now, it needs to break out above resistance of the high end of the trading range. A nd since our options don’t expire for another six months we can afford to wait patiently for the breakout. Resistance is at $40 and $45. Support is at $32.50 and $30.
POT September 2011 $60 Calls
POT is hanging onto support of the upward trending 200-day moving average. Clearly the recent weakness in corn, wheat, and soybean prices are weighing on POT. Corn prices alone have fallen from record highs near $8 per bushel to under $7 in the last few weeks. But lower prices aren’t the end of the world. Farmers are still going to increase spending on fertilizer if corn is at $7, $6, or even $4 per bushel. And based on the recent USDA estimates, I don’t see how grain prices fall much further. Continue holding for a rebound in POT. Resistance is at $62.50 and $70. Support is at $50 and $48.
WPRT October 2011 $30 Calls
WPRT found support near the 200-day moving average. And it began moving higher over the last few days. However, we need the NAT GAS Act to pass if we’re going to see WPRT regain its bullish momentum. Continue holding… Resistance is at $30 and $35. Support is at $20 and $17.50.
Category: EOT Update
