EOT Position Update – May 11, 2011

| May 11, 2011

May 11, 2011

Market Snapshot

Over the last few weeks, we’ve seen signs the ‘risk on’ bull market is nearing an end. Or at least preparing to take a breather.

Ever since the Fed began QE2 last year, risky assets like stocks and commodities have gone straight up.  Now the tide is turning.  And it’s no coincidence QE2 is ending next month.

Remember, there’s a strong correlation between stock prices and the Fed’s QE program.  When the Fed is buying Treasuries… stocks go up.  When the Fed stops buying… the markets don’t go anywhere.  And when the Fed starts shrinking their holdings… stocks go down.

It’s no wonder we’re seeing investors become more defensive.  They’re unwinding bullish investments, reducing risk, and cutting the amount of leverage they’re using.

As a result, commodity prices are becoming more volatile.  And defensive sectors like consumer staples, healthcare, and utilities are outperforming cyclical sectors like materials, energy, and financials.

What’s more, the ultimate safe haven – the US Dollar – has rocketed higher over the last week.  It’s a major change for the world’s reserve currency.  Just look at this chart…


You can see the greenback has been stuck in a major downtrend.  But it’s now rebounded off the recent lows.  If the dollar breaks out of its downtrend, it will put even more downward pressure on stocks and commodities.

The good news is… our options strategy can profit whether the markets are sinking or soaring.

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.

  POT September 2011 $60 Calls
POT is our latest trade.  Go ahead and buy this call option up to $2.25 if you haven’t already.  Resistance is at $62.50 and $70.  Support is at $50 and $48.

  WMT June 2011 $55 Puts
WMT is set up for a fall.  The stock is near heavy resistance at $55.  And it doesn’t look like it has enough momentum to push higher from here.  I’m expecting a sharp correction.  But it may not happen until they report earnings.  Hold tight for the earnings announcement on Tuesday.  Resistance is at $57 and $58.  Support is at $52 and $50.

  WPRT October 2011 $30 Calls
WPRT is stuck between $23 and $26.  The good news is… there’s plenty of upside potential.  The bad news is… we’re waiting to hear if Congress will pass the Nat Gas Act.  But the longer oil prices stay elevated, the better the chance we’ll see Congress take action.  Sit tight for now.  Resistance is at $30 and $35.  Support is at $20 and $17.50.

  MCD June 2011 $80 Calls
MCD is finally closing in on our $80 resistance level.  It’s taken MCD a little longer than I expected to finally get moving.  As a result, call options have lost some of their time value.  So even though the stock has gone up since the trade alert, our options are still down a little.  But our options are only a few cents away from moving into the money.  We should see some big gains once MCD clears $80.  Continue holding MCD for the next leg higher.  Resistance levels are at $80 and $85.  Support is at $70 and $67.50.

Category: EOT Update

About the Author ()

Comments are closed.