EOT Position Update – May 2, 2012

| May 2, 2012

May 2, 2012

Market Snapshot

There’s no doubt, the first day in May seemed to be positive… but was it?

Watching the sentiment, I can’t help but wonder how much of the action today was computer-driven rather than real buying.

Of course, some will say it’s all computer-driven these days, so it doesn’t really matter.

But it’s important to recognize that computers don’t have memories from day-to-day. And that leads to a higher risk of fast market reversals.

Now more than ever, it’s time to be cautious.

US stocks finished off the highs of yesterday’s session but still kicked off May with nice gains.  The Dow Jones Industrial Average hit its highest intra-day level since 2007 before ending Tuesday about 65 points higher.  The Nasdaq added 4 points, while the broader S&P 500 index tacked on 8 points.

All of these indices are at key resistance levels… the danger zone!

Let’s assume yesterday’s action may have been an aberration.  So where do we go from here?

Let’s focus our attention on some key points…

It’s troubling to see recently poor action in Apple (AAPL), which completely reversed yesterday.  That’s because it’s still by far the most important stock in the market.  And when buyers don’t support it, you have to wonder if that’s likely to spread to the broader market.

Now, it was finally a relief to have one better-than-expected economic number (ISM manufacturing) which came in at 54.8 versus an expectation of 53.0.  That was the best read since June of 2011.  But one good read isn’t a trend.

So don’t start doing cartwheels just yet.

I think it’s really the monthly jobs report that’s going to be the major market mover. And this isn’t released until Friday.

Bottom line…

We have quite a bit of economic data coming overnight and that’s what’s going to drive the market.

I’d like to be more positive about this market.  However, I must remain very cautious. With the slow action Monday, along with the technical nature of yesterday’s trading, the generally poor economic reports, and European concerns still lingering, these aren’t the most positive sign.

In fact, patience continues to be a key factor to investors.  We don’t want to guess if this is a break out or not.

Let’s give it a few days.

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.

  CLNE June 2012 $19 Puts
Clean Energy Fuels continues to plummet since our recommendation.  In this volatile market, CLNE’s downtrend is still intact.  As natural gas prices have continued to fall, so has CLNE.  And it still continues.  We’ve got plenty of time until expiration.  And until natural gas turns, we’ll hold this trade for larger gains.  Remember, we want this stock to fall.  Resistance remains at $24.50 and $25.50.  Support is at $17.50 and $16.50.

  CF Industries May 2012 $195 Calls
CF Industries has been on a rollercoaster over the last few weeks.  In addition, they’re scheduled to report earnings within the next few days.  This stock has returned just under a double for us in about three weeks.  And these options are now sitting at their highs with only two weeks until May expiration.  So, it’s up to your tolerance, but I’d like to see both conservative and aggressive investors sell them and take profits. Congratulations!

Please remember, there’s two reason’s I’m making this early recommendation on CF. The first is because May expiration is right around the corner and time decay is going to start eroding the options.  And second, since this was a more expensive option than usual, I would like you to have these profits to spend on additional recommendations we’ll be rolling out very shortly.

Category: EOT Update

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