EOT Position Update – March 18, 2009

| March 18, 2009

March 18, 2009

Market Snapshot

Finally!  We’ve finally seen a follow through on an up day in the markets.  Last week ended with the markets actually posting their first weekly gain in six weeks.  The one day pop then drop are on hold (at least for the last few days).

Why is this significant?

It isn’t.  What’s significant is the follow through we’re seeing right now.  Right now, if we were to close out trading for the week, we’d have two consecutive weeks of upward momentum.  That’s the first winning trend since April of 2008.  That’s almost an entire year of a steadily falling market.

That’s why everyone is watching the markets so intently.  The key number in my mind is 7,225 (on the Dow).  As long as we stay above that for the next few days (and close above it on Friday), it’s a very positive sign.

The big news this week…

The big flurry of activity out of Washington this week is the rage over AIG bonuses.  I can’t believe they paid these company destroying employees bonuses.  Another reason to push for bankruptcy not bailout.  At least in bankruptcy they’d have the power to break contracts and not pay.  This is an outrage that everyone should be upset about.

But in the grand scheme of things it means very little for the markets or our trading activity.

Alcoa announced a cut to their dividend… is nothing sacred anymore?  (see our comments in the Parting Shots section)

MGM Mirage is teetering on the brink of bankruptcy… maybe they can get a bailout?  Or maybe the government should start using the pit bosses to collect the AIG bonuses?!?  Now that’s an idea!

GE lost its coveted AAA bond rating… and the stock rallies.  That’s a great sign in my mind.

Bank of America stock spiked after the CEO announced they expect to be profitable in 2009.  American Express fell after news customers were defaulting at higher rates. Who didn’t see that coming?

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.

  GE June 2009 $11 CALLS (GEWFI)
This was our new trade this week.  Everyone should have had the opportunity to take on a position.  The selling in GE got way out of hand.  The company lost their AAA credit rating and the stock went up.  Thursday (tomorrow) will be a big day as their finance arm will update investors about the real estate business.  I’m expecting some big movement.  Resistance levels will be at $11 and $13.75.  Support levels will be at $8.25 and $7.

  BDK May 2009 $17.50 PUTS (BDKQW)
What are the odds?  BDK stock has done nothing but move straight up for the last seven days.  We traded above our first resistance level.  If you’re using this as an exit strategy, now’s the time to pull the plug.  Aggressive investors should sit tight.  I still expect the next few months to be difficult for the company.  Resistance is $25 and again at $28.  Support levels are $17 and $15.

  WPI May 2009 $30 CALLS (WPIEF)
We rallied back up to 28 on this trade last week.  This week we’re pushing above $29… Hold tight, we could be in the money as early as next week.  Resistance levels will be at $31.50 and again at $33.  Support levels are $27 and $25.

  TM April 2009 $55 PUTS (TMPK)
TM bucked the downtrend, and like the rest of the market started moving higher.  This wasn’t good for our options.  I looks like most of you took profits last week when we were up 97%.  If you’re still holding, consider giving this trade more time… if we get another down leg in the market, the stock should move lower.

  EMC April 2009 $11 CALLS (EMCDM)
Rumors that Sun is poised to be bought out by IBM drove tech stocks higher.  Our EMC didn’t disappoint.  We got a nice +3% pop out of the news today.  This puts our options back in the money (barely) and close to our original entry price.  We have a few weeks on this one, give it time.  Resistance levels will be at $13.00 and again at $14.25.  Support levels will be at $9.50 and $8.50.

  ORCL June 2009 $19 CALLS (ORQFT )
Well, we were right.  Management delivered on earnings, blowing out numbers.  The stock is up big in after-hours trading.  Aggressive investors who were holding on to this trade might get some good momentum out of this news.  I can’t wait to see how the stock reacts tomorrow.

Parting Shots…

Disappearing Dividends?

I’ve noticed a trend in the market place.  I’m sure you’ve noticed it too.  It’s as obvious as a giant porterhouse steak at a vegetarian dinner… a joyous sight to some and a sickening view to others.

What am I talking about?

Dividends of course.  More precisely, the rate at which dividends are disappearing.  You can’t crack open the paper without seeing news of yet another company canceling or cutting their dividend.  (Alcoa did it just this week.)

Some are doing it to save money.  Others (like banks) are forced by TARP funding to cut their dividends.

The net effect is dividends are no longer a sacred cow to be saved from the slaughter. All of them are under review and questionable in today’s recession.  I’ll say this, companies who survive with their dividends intact, are sure to prosper once the economy gets rolling again.

Category: EOT Update

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