EOT Position Update – March 23, 2011

| March 23, 2011

March 23, 2011

Market Snapshot

There’s a downtrend emerging in the major stock market averages.  And it has me more than a little concerned.

Take a look at this chart of the S&P 500…


The red circles on the chart highlight the last two times the S&P 500 fell below its 50-day moving average after an extended uptrend.  It happened in May of last year and it just happened again a few weeks ago.

Last May, the broken support of the 50-day moving average became a stiff resistance level for the S&P 500.  After failing to break above it, the S&P 500 went into a three month long correction that shaved off 208 points or more than 17%.

I think we’re in danger of slipping into another major correction right now.  It’s absolutely critical the S&P 500 overtakes the 50-day moving average in the next few days.  If it doesn’t, all bets are off…

To be honest, the market has been tough to get a read on the last few days.  We’ve seen some big moves in pre-market trading followed by light trading during market hours.  It’s a clear indication investors are indecisive and lack conviction at this point in time.

The bottom line is the technical indicators are telling us the market’s at a crossroads.

If the market can break above the 50-day moving average, then the recent pullback was a great buying opportunity.  But if the market fails to retake the 50-day moving average, we could see the second leg down in an emerging market correction.

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.

  AKAM August 2011 $40 Calls
AKAM bounced off the $35 support zone and began moving higher.  This stock looks undervalued here.  I think AKAM has a chance to move higher from oversold conditions regardless of what happens in the broad market.  Resistance is at $43.50 and $47. Support is at $32 and $30.

  GM June 2011 $35 Calls
GM is falling on fear of parts shortages leading to production shutdowns over the next few months.  Many GM models contain electronics and sensors produced in Japan.  And a good number of those Japanese factories have been closed after the earthquake.  I think GM will follow the direction of the broad markets.  So I’m keeping an eye on the key technicals I wrote about earlier.  Hold tight for now.  Resistance is at $37 and $40.  Support is at $31 and $29.

  MCD June 2011 $80 Calls
MCD has clearly lost some momentum.  Investors are worried higher commodity prices will pinch profit margins this quarter.  Now MCD is tracking the broad markets closely. And like I said earlier, the technical indicators show the markets are at a crossroads. Hold tight for now.  Resistance is at $80 and 85.  Support is at $70 and $67.50.

  AUY April 2011 $12 Calls
AUY is in an uptrend.  In fact, it’s been in one for the past eight months.  But it’s been an awfully bumpy ride.  The good news is gold prices could surge higher soon.  And when they do, AUY should make a run at our resistance levels.  Hold tight for the next leg higher.  Resistance is at $14 and $17.  Support is at $11 and $10.

Category: EOT Update

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