EOT Position Update – November 17, 2010

| November 17, 2010

November 17, 2010

Market Snapshot

It’s déjà vu…

After months on the back burner, European sovereign debt worries came to the forefront this week.  But this time around it’s Ireland, not Greece, taking center stage.

EU and IMF officials are pressing Irish politicians to take a bailout package to fix their banking system.  But so far Ireland is resisting the pressure.

If nothing else, it’s reminding investors the wounds from the 2008 financial crisis are far from healed…

And to top it off, Chinese consumer price inflation came in much hotter than expected. A clear warning sign their fast growing economy is at risk of overheating.

If China raises interest rates to curb inflation, it will certainly cut into their economic growth rate.  Without Chinese growth to pull the world economy forward, it certainly puts a double dip recession back into play.

The result?

The “risk on” trade driving the US Dollar lower and stocks higher has hit a wall.  Traders are taking profits on the two month long, 18% rally in the S&P 500.  (And who can blame them!)

The good news is… So far it looks like a normal pullback.

Remember, the S&P 500 is still in a solid uptrend.  Over the last few weeks, the rally was certainly overextended to the upside.  So a correction at these levels is nothing out of the ordinary.

Here’s what I’m seeing right now.

The US Dollar is coming into resistance. The S&P 500, as well as the leading sectors, are coming into support zones.

There’s a good chance we could see the US Dollar rally fail and stocks bounce back over the next few days.  If that happens… We should see the uptrend continue.

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.

  DRQ March 2011 $85 Calls
DRQ pulled back to support of the 20-day moving average before surging 3% higher today.  There hasn’t been any new news since they released earnings a few weeks ago.  But the uptrend continues.  Hold tight for further gains ahead.  Resistance is at $80 and $90.  Support is at $62 and $57.

  MCP March 2011 $45 Calls
MCP has pulled back a bit… But their profit potential is truly amazing.  They’ll have a virtual monopoly on Rare Earth Mining outside of China once they’re operational.  As long as China keeps a lid on Rare Earth exports, MCP will get another speculative rally before long.  Hold tight for the next leg higher.  The next resistance is at $45.  Support is at $25 and $20.

  FRX January 2011 $34 Calls
FRX has pulled back to support of the 50-day moving average.  Healthcare stocks in general have taken a hit lately.  And the lack of news about FRX leads me to believe this pullback has more to do with industry concerns than anything to do with FRX.  So hold tight for now.  Resistance is at $35 and $40.  Support is at $30 and $27.50.

  PEGA March 2011 $25 Calls
PEGA hasn’t been able to build on the momentum from their record setting quarter.  The 200-day moving average has been a virtual “brick wall”.  But we still have plenty of time on our options for PEGA to bust through this resistance level and reach $35. Aggressive traders should continue holding for the next leg higher.  The next resistance is at $35.  Support is at $16 and $15.

Category: EOT Update

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