EOT Position Update – June 25, 2008

| June 25, 2008

June 25, 2008

Market Snapshot

Note: Watch for a new trade tomorrow.

The Dow Jones Industrial Average just closed at 11,811.  We’re down another 200 points from this time last week.  Despite the Fed announcement, the market was only able to put together a 4 point rally.  Consumer confidence leads the news this week, and UPS followed in the footsteps of FedEx.  Monsanto beat estimates, and Coal is continuing to go up.

This week has been focused on the consumer.  With the Case-Shiller home price index in free fall, consumer confidence numbers are weakening.  Yesterday we learned that consumer confidence numbers are now at levels last seen in 1992.  I see a lot more people conserving gas and shopping for discounts these days.

The Federal Reserve meeting wrapped up today.  As expected, the Fed didn’t change interest rates, but they continued their tough talk on inflation.  They noted Food and Fuel prices were driving concerns here in the US.  This was the first time in 9 months that they left rates unchanged.

Monsanto beat analyst estimates by $0.10 a share.  Strong earnings like that are sure to continue in the agricultural industry.

UPS was crushed over the last few days.  They followed in the footsteps of FedEx and announced higher fuel prices and lower package volumes.  Looks like the recession is starting to become more obvious.

Coal made the news this week.  China might start implementing price caps on coal.  In order to enforce the restriction China would need to halt exports.  That will lead to a reduction in supply and as a result higher prices.

Now for the trade updates.

Position Updates

  ICO September 2008 $12.50 Calls (ICOIV)
After rallying above 13 earlier this week the stock settled into its current range.  I know many of you took profits at the first resistance level – congratulations!  If you’re still holding a position give it time, we still have a few months on this trade.  Resistance is at 13 and 15.  Support levels are 9 and 7.50.

  AHGP October 2008 $30 Calls (AQPJF)
AHGP traded up this week at one point crossing the $30 level.  We’re still getting lots of good news in the coal markets.  I’d give this trade more time to develop.  Resistance is 32.25 and 35.  Support levels are 26 and 25.

  NGS July 2008 $30 Calls (NGSGF)
Congratulations to everyone taking profits on the trade last week.  NGS dropped below 29 this week.  If we get a big move in natural gas prices we could see the stock spike again.  The next resistance is at 35.  Support is 25 and 23.

Parting Shots…

The Fed and the Market.

Today was a big day for the markets.  The Federal Reserve Board met today and decided to hold interest rates stable.  The announcement was expected – and the markets are up slightly on the news.  This announcement tells me two things . . . one about the economy and the other about inflation.

First the Economy.

By holding rates stable the Fed is essentially indicating that the economy, while slowing, is still growing.  It also means that the liquidity actions they put in place over the last few months are working.  The banking institutions are lending and the credit crunch is starting to loosen up.

Great news for the financial industry as a whole.  This is a signal that the industry may be approaching an inflection point in the next few months.

On to inflation.

The Fed announcement also tells me to watch for inflation.  It’s like getting poison ivy. You don’t notice it right away, but when you do it can be really painful.  To get rid of the problem takes effort and time.

I’m watching the traditional industries that hold up well in inflationary times.  Consumer goods is a big one.  I’m also focused on commodities and commodity related companies.  They should all prosper as prices increase.

Category: EOT Update

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