EOT Position Update – March 9, 2011

| March 9, 2011

March 9, 2011

Market Snapshot

Markets have settled into a trading range since the Libyan revolution began a few weeks ago.  Investors are clearly taking a wait and see approach to the Middle East turmoil.

On one hand, we have improving economic data and strong earnings growth.

Leading economic indicators show the economy should be stronger in six months.  And we’re beginning to see very positive signs in the labor market.  Initial jobless claims are trending steadily lower… and private payrolls are expanding faster than expected.

Simply stated, there are a lot of positives for the economy!

But on the other hand, we have political unrest in Libya and many other oil producing countries in the Middle East.  The potential for a major disruption to world oil supplies has driven a $15 to $25 fear premium into crude oil prices.

And the one thing almost every economist agrees on is… much higher or sustained high oil prices are the biggest risk to our economic recovery. 

Here’s the good news…

Market volatility has been minimal despite the added uncertainty from Libya and $100 oil.  In fact, the CBOE Volatility Index (VIX) is still below 20… a reading that indicates a low level of fear or even complacency among investors.

The low reading on the VIX is a good sign for our bullish call options.  It means the smart money isn’t overly worried about a significant pullback in stocks at this point.

I think we’re going through a bullish consolidation period right now.  Down the road, we’ll look back at this time as a great buying opportunity.

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.

  GM June 2011 $35 Calls
GM is holding steady around $32 to $33.  Uncertainty surrounding oil prices and the situation in Libya and the Middle East is weighing on the shares.  And news that China’s auto sales slowed to 3% annual growth isn’t helping.  However, I still think GM is undervalued at this price.  Sit tight for now.  Resistance is at $37 and $40.  Support is at $31 and $29.

  RIO July 2011 $80 Calls
RIO’s bullish breakout failed as the market’s bullish momentum slowed.  RIO is just above our $65 support zone.  If it falls below $65, conservative traders should sell to conserve capital.  More aggressive traders may want to hold out for a rebound. Resistance is at $80 and $85.  Support is at $65 and $62.

  DO June 2011 $78.50 Calls
DO is in a strong uptrend.  The number of rigs exploring for oil and gas is rising along with oil prices.  That’s good news for DO.  Congratulations to everyone locking in gains of 143%!  I’m expecting even bigger gains ahead for DO.  Aggressive traders should hold out for the next leg higher.  The next resistance is at $85.  Support is at $64 and $62.

Category: EOT Update

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