EOT Position Update – March 21, 2012

| March 21, 2012

March 21, 2012

Market Snapshot

Patient investing will be key moving forward!

Even after a few down days in the market, investors are still marveling at the 12% year-to-date rally in the S&P 500.  This powerful surge in equities has driven the market to new post-recession highs.

Right now the market is at an inflection point and important decisions must be made.

With the S&P now trading on either side of 1,400, we can’t afford to chase the market by buying breakouts to new highs.

Take a look at the facts that have piled up over the past few months of this rally.  They’ll help guide our plan of action.

First, the 2012 rally provides proof that investors are ignoring what would usually be considered simply average economic data.

Next, the sovereign debt crisis in Europe appears to be cooling.  An agreement to reduce the debt owed by Greece is now in place.  Private bondholders have agreed to take a loss of over 70% to make this deal happen.

What’s more, inflation in China has remained manageable, even though the Chinese economy continues expanding at breakneck speed.  Through prudent bank reserve policies, China reported an inflation rate of 3.2% in February.  Normally, the historic rate of inflation is 4.25%.

Although there’s a strong case for the rally to continue, we must also weigh the other side of the coin.

The S&P 500 has already delivered returns of over 10% for the year.  That means, if investors were to take profits right now, they’d have a pretty decent year.  This builds the case that the rally in the S&P 500 could come to a halt at any time.

What’s more, S&P analysts believe stock valuations are becoming a bit stretched.  This could mean future upside in many equities may be limited.  Alec Young of S&P Capital global equity strategist said, “Equities are now pricing in a much rosier outlook than was the case in December.”

In other words, equities may be closing in on a top, making it difficult for the S&P to continue climbing.

As I said earlier, patience is going to be the key.

Any further rally will have to be earned through improving economic data and global stability.  Be patient, be cautious, and be prudent.

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.

  GLD June 2012 $154 Puts
GLD is our newest trade.  Our Put options are down a few cents since our trade alert went out last week.  However, we’re still in a good position here.  GLD’s uptrend has been broken and now seems to be in a downtrend.  Remember, we want this stock to fall.  Resistance is at $170 and $180.  Support is at $150 and $140.

  MRO July 2012 $36 Calls
Marathon Oil is trading down now almost $2 since our recommendation.  Shares of MRO have taken a beating lately, along with many other stocks in the energy sector. However, volatility in this option has worked in our favor by keeping the premium elevated.  And with almost five months left until expiration, there’s no reason to touch these calls.  Hang in there for gains to return.  Remember, we want this stock to move higher.  Resistance is at $42 and again at $50.  Support will be at $30 and $27.50.

  GRPN April 2012 $21 Puts
Groupon shares have been jumping around a bit this week.  But today they are taking a nice 2% hit.  That’s good news since we want this stock to move lower.  Since our GRPN puts reached their first support level of $18, we advised conservative investors to take profits.  For aggressive traders, stick with GRPN for more gains.  Remember, we want this stock to move lower.  Support remains at $15.  Resistance levels will be at $23 and again at $26.

Category: EOT Update

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