EOT Position Update – June 3, 2009

| June 3, 2009

June 3, 2009

Market Snapshot

Well, here we go again.  Economic data continues to move the markets on a daily basis.  Sending stocks on a rollercoaster ride, higher one day and lower the next.

Just this week, the Dow soared 220 points on Monday.  Now it’s down 120 points today.  I hope you’re not prone to motion sickness (if you are I suggest a Dramamine) because it’s going to be wild ride over the next few weeks.

Right now it’s setting up for a battle of wills between the ‘bulls’ and the ‘bears’.

The market is at a key technical resistance level.  The 200-day moving average (MA) is a major hurdle for any stock or index.  It will often act like a brick wall, stopping any trend higher or lower dead in its tracks.  But based on the ‘magic’ of technical, once the level is crossed, it turns from resistance into support.

A look at the charts will reveal the S&P 500 and NASDAQ have already closed above the 200-day MA.  And the Dow closed right on the 200-day MA yesterday.  If the Dow is able to close above it, then all three major indexes will have a strong floor of support.  This adds additional strength to the ‘bulls’.

And the ‘bears’ are keenly aware of this.  They are going to do everything they can to drive the market down.

They’ve drawn the line in the sand, so to speak.  It’s going to be an epic battle for control of the markets.  Somebody pass the Dramamine, please.

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.

  MRO October 2009 $35 CALLS (MROJG)
Rising oil prices have MRO’s shares heading higher.  Oil prices are now up over 100% from their lows!  Continued weakness in the dollar should keep oil heading higher, which is great news for our calls.  In fact, they were up 61% in less than a week. Resistance at $35 and $40.  Support is at $26 and $25.25.

  FWRD July 2009 $20 PUTS (FQXSD)
A horrible first quarter and a gloomy outlook for 2009 hasn’t stopped FWRD from rallying.  At the time we recommended these puts, the market was ripe for a short term pullback.  However, the positive economic data on Monday sent the market up sharply.  FWRD hit both of our resistance levels, only the most aggressive traders should be holding onto these puts.  Resistance at $21 and $22.50.  Support is at $17.25 and $16.50.

  INTC October 2009 $16 CALLS (NQJQ)
INTC broke through resistance of the 200-day moving average this week.  These calls set a new high and are now in the money.  Hold on for the next move higher. Resistance at $16.80 and $19.  Support is at $14 and $12.75.

  JPM June 2009 $37.50 CALLS (JPMFU)
JPM raised capital this week which means they created and sold new shares into the market.  This dilution wasn’t well received.  The stock has been moving lower ever since.  If you’re still holding these calls, start looking to exit soon.  We’re closing in on the expiration date later this month.  Resistance will be at $37.50 and $42.  Support is at $28 and $25.

  LZ June 2009 $45 CALLS (LZFI)

These calls are in the money and moving higher, but time is working against us. Aggressive traders may want to hold on for another move up.  Everyone else should be exiting soon.  Resistance is $45 and $50.  Support is $37.50 and $32.75.

Parting Shots…

Shaking up the Dow

Two icons of American business are being removed from the Dow Jones Industrial Average.  General Motors (GM) and Citigroup (C) will be replaced by Travelers(TRV) and Cisco Systems (CSCO) on June 8, 2009.

GM and Citi were both titans of their industry.  They’ve been reduced to wards of the state (or federal government).  GM is now in bankruptcy.  Citi is holding on by a thread, thanks to the ‘too big to fail’ policies and billions of dollars of bailout money.

The recent recession exposed the inept management and over leveraging (too much debt) of these institutions.  In a truly free market, these companies would have been gone long ago.

Even though these companies will continue to operate, the markets are finally able to voice their opinion.  They’re saying, these companies are not viable in a free market. And I agree whole heartedly.

Companies should be allowed to fail.  It isn’t government’s job to save them from themselves.  At least they can’t dictate which companies are included in the Dow.  The free market lives on… sort of.

Category: EOT Update

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