EOT position update March 26, 2014

| March 26, 2014

March 26, 2014

Market Snapshot

2014 is shaping up to be very different than 2013 for the market…

The days of all the sectors going up at the same time are a thing of the past.  Now the strength and weakness shifts from one sector to the next on a weekly or sometimes daily basis.

The money rotation has many catalysts.  Money is rotating from one sector to the next.  Money is shift away from high flying growth stocks and toward value stocks. And at the same time, money is moving into cyclical boom and bust sectors.

Needless to say, there are a lot of moving parts.

For much of the last few years, investors have focused on companies they believe will have above average revenue and earnings growth.

Lately, a wave of selling has hit high flying growth stocks.  And we’re seeing money flow into undervalued or underappreciated stocks.

In other words, investors are taking profits on stocks that have big gains.  And they’re putting money to work in stocks that haven’t participated in the rally for one reason or another.

Obviously, this is an important development and one I’m keeping a close eye on.

Here’s the good news…

This is a great environment for options.  We can use call options to profit from the upside in undervalued and cyclical growth stocks and put options to profit from the correction in overvalued growth stocks.

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.

GMCR May 2014 $90 Puts
GMCR is the definition of a high flying growth stock.  It has forward PE of 26.5 – that’s at the high end of consumer goods makers.  It’s exactly the type of stock we’re seeing investor sentiment sour on.  Grab these options up to $3.10.  Support is at $90.00 and $80.00.  Resistance is at $110.00 and $115.00.

GILD April 2014 $82.50 Calls
GILD has taken a beating lately.  The tide has turned against GILD and biotech stocks in general.  One thing that has clearly taken a hefty toll on GILD is Congress’ Committee on Energy and Commerce raising concerns about the pricing of their new hepatitis C drug.  It’s time to close this trade out to conserve capital and move onto better opportunities.

Category: EOT Update

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