EOT Position Update – June 30, 2010

| June 30, 2010

June 30, 2010

Market Snapshot

The 2nd quarter came to an end today.  It’s been ugly to say the least.  This quarter alone, the Dow is down 10%, the S&P 500 shed 12%, and the NASDAQ lost 12%.  And to top it off, all three closed at their worst levels of the year today.

It’s not looking good…

We’ve been tracking the development of a head and shoulders reversal pattern in the major averages over the course of the year.

And it looks like today may be the tipping point sending the major averages down sharply.  Take a look at the chart of the S&P 500 below.


You can see the head and shoulders pattern forming throughout the year.  Today’s close below the support of the neckline at 1,040 on the S&P 500 is a clear sign the markets are heading lower.

As a general rule, when a head and shoulders pattern breaks support of the neckline, the expected drop is equal to the distance from the head to the neckline.

It’s a fancy way of saying our downside target in the S&P 500 is 880… Ouch!

We’re well positioned to profit from our existing put options.  And our call options in stable companies like Johnson & Johnson (JNJ) should hold up well.

Of course, we could see government intervention or surprisingly good economic data trump the technical chart pattern.  But right now, economic data is mediocre at best and another stimulus package from Washington is unlikely.

It looks like the markets will continue heading lower in the short term.

I hope you have a safe and happy 4th of July!  As always, you can email me your questions and comments at customerservice@hyperionfinancial.com.

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.

  JNJ October 2010 $62.50 Calls
JNJ’s stock price is holding up well as the majority of stocks have headed down over the last week.  Even without a big move in the stock, we’re seeing our option go up in value due to the increased market volatility.  In just the first week, our option hit a peak gain of 17%.  Continue holding for further gains.  Resistance is at $62.50 and $65.  Support is at $57.50 and $55.

  RIG August 2010 $40 Puts
RIG’s downtrend remains firmly in place.  The cloud of uncertainty around the company continues to pressure shares lower.  What’s still unclear is their liability for the Gulf of Mexico oil spill.  Not to mention the future of offshore drilling and the economy in general.  But right now, everything is pretty negative.  Hold tight for RIG’s next leg down.  Resistance is at $56.75 and $64.  Support is at $40 and $35.

  ENS September 2010 $22.50 Puts
ENS is testing the recent lows around $21.30.  It looks like ENS is about ready to take a dive off a cliff.  There’s an extremely bearish descending triangle pattern forming on ENS’s chart.  If the pattern plays out as expected, ENS could fall all the way to $15. Hold tight for now.  Resistance is at $25.50 and $27.  Support is at $20 and $19.

  WFC July 2010 $28 Puts
WFC broke through the recent lows and blew through our first support level at $26.25. Conservative traders should have locked in a 25% gain on the move yesterday.  Our puts are now $2.40 in the money.  Right now the entire value of the option is intrinsic value ($28 strike price – $25.60 stock price).  With the bearish momentum in WFC and the markets in general, WFC should continue moving lower.  Aggressive traders should continue holding for further gains.  Resistance is at $29.75 and $30.50.  The next support is at $25.

  ASIA October 2010 $30 Calls
ASIA’s rally took a hit on news out of China this week.  The Leading Economic Index (LEI) for China suggests economic growth there may be slowing.  But we also had yet another analyst reaffirm their price target of $38 for ASIA.  We still have plenty of time for this trade to work out in our favor.  Hold tight for now.  Resistance is at $29.50 and $32.  Support is at $18 and $16.

Category: EOT Update

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