EOT Position Update – May 18, 2011

| May 18, 2011

May 18, 2011

Market Snapshot

Right now you can sum up the markets in one word… Uncertainty!

The markets are gripped by it.  And I don’t see it going away anytime soon.

To show you what I mean, look no further than the market’s leading stocks.  They’re all from defensive sectors like healthcare, consumer staples, and utilities.

These sectors aren’t dependent on discretionary income to grow.  So, they’re less risky than stocks in cyclical sectors like basic materials, technology, and energy.

In short, we’re seeing sector rotation out of cyclical and into defensive stocks.  It’s a clear sign big money investors are preparing for uncertainty.

And for good reason…

The Fed is ending QE2 in June… GDP growth estimates are falling… Inflation estimates are rising… The US Dollar is strengthening… Greek sovereign debt issues are flaring up again… And that’s just to name a few!

No doubt about it, stocks are facing headwinds on multiple fronts.

But headwinds aren’t the biggest hurdle right now.  The real problem is a lack of upside catalysts.

Over the last two years, there have been a number of different catalysts investors could look to as a reason to buy.  As a result, we’ve enjoyed a strong bull market.

But right now widespread uncertainty has neutralized any potential upside catalysts. It’s making it difficult for the markets to move much higher or lower than they are right now.

What does that mean for you?

We’ll likely see increased volatility and range bound trading for awhile.  We need the markets to identify a new catalyst to propel stocks one way or the other.  Either way, we’ll be ready to take advantage of the markets next move.

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 moving in our favor.  According to an article in Barron’s, “Potash supplies are tight and agricultural demand continues to rise.”  That’s exactly why we bought call options on POT.  Now that everyone else is catching on, the stock and our options should soar.  Continue holding for bigger gains ahead.  Resistance is at $62.50 and $70.  Support is at $50 and $48.

  WMT June 2011 $55 Puts
WMT reported good but not great earnings.  The report wasn’t enough to move the stock.  But more importantly, WMT’s chart looks great.  It hit resistance and is moving lower in a hurry.  Continue holding for bigger gains ahead.  Resistance is at $57 and $58.  Support is at $52 and $50.

  WPRT October 2011 $30 Calls
WPRT struck a deal with Caterpillar (CAT) to see if they can run Caterpillar’s large engines on natural gas.  This is another step in the right direction.  Clearly, the idea of replacing oil with natural gas to fuel our transportation is picking up steam.  Continue holding for the next leg higher.  Resistance is at $30 and $35.  Support is at $20 and $17.50.

  MCD June 2011 $80 Calls
MCD surged past our first resistance level this week.  Our option hit a peak gain of 44%.  Congratulations to everyone cashing in.  Aggressive traders should continue holding for bigger gains ahead.  The next resistance level is at $85.  Support is at $70 and $67.50.

Category: EOT Update

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