EOT Position Update – November 4, 2015

| November 4, 2015

Market Snapshot

First off, congratulations to my Kansas City Royals… it’s been 30 years since they won a World Series.  It was so much fun cheering them on as they took home the crown again this year.

That said, let’s take a look at the markets… US stocks enjoyed an impressive rally over the last month.

The S&P 500 shot up 12.5% from the low on September 29th to the close on November 2nd.  That’s an impressive gain to say the least.

S&P 500

Along the way, the S&P 500 cut through multiple resistance levels like a hot knife through butter.  Now the large cap index is back above all critical moving averages like the 50-day moving average, 200-day moving average, and the 50-week moving average.

The impressive move was fueled by a combination of better than expected third quarter earnings and central bank actions that are beneficial to stocks.

Amazingly, the S&P 500 is back near the all-time high.  Needless to say, the rally has shot holes in the theories that stocks were entering into a bear market.

But don’t forget that the correction did break the uptrend.  And there’s still uncertainty about the market’s next move.

We could be at the beginning of new uptrend.  Or we could enter another period of stagnant stock returns and range bound trading.  Or the recent rally could be a counter-trend rally at the beginning of a downtrend.

All three are very real possibilities right now.  Only time and price action will tell us what the next phase holds for stocks.

We do know that the recent rally was fueled by an influx of money that flooded out of short term treasuries after the latest Fed announcement.  In short, the Fed put the possibility of a December rate hike back on the table… if the economic data supports it.

However, there are still headwinds for stocks. 

The US Dollar is strengthening again.  That puts pressure on commodity prices and corporate earnings made in foreign currencies.

And slowing economic growth in China is hurting as well.  Companies that made a big push into China in recent years aren’t seeing the growth they expected for everything from basic materials to consumer items.

Those concerns aside, there’s no doubt that the recent rally has flipped investor sentiment.  According to the AAII Investor Sentiment Survey, 40.4% of investors are now bullish on stocks over the next six months.  That’s an increase of 5.6% from last week.

What’s more, the beginning of November marks the return of the Sell-In-May-And-Go-Away crowd.  So, there are certainly signs that the market is setting up for a strong rally to end the year.

Now, onto the updates…


Position Updates

Just a quick note:  Remember, we won’t update every open position every week.  We try to focus on the positions that have some significant news or price movement.

CAT November 20th 2015 $67.50 Puts

CAT’s poor fundamentals and ugly forward guidance have lost out to improving investor sentiment and an increase in risk appetite.  Look for an opportunity to close this trade by selling the option to recoup some capital in the days ahead.

AAPL November 20th 2015 $120 Calls

AAPL has been moving higher over the last few weeks.  That’s great news for our call option.  The stock is now back above the 200-day moving average and our $120.00 resistance level.  Conservative traders should be locking in a solid gain of 40% on this option.  Aggressive traders can continue holding as AAPL appears to be making a run back to the recent highs.  The next resistance is at $130.00.

Category: EOT Update

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