EOT Position Update – November 5, 2008

| November 5, 2008

November 5, 2008

Market Snapshot

The Election’s over!  Obama Wins!  We can now focus on the important issues . . . like the economy.  Obama’s going to have his hands full with getting the American economy back on the right track.  I’m looking forward to seeing what ideas this new administration will present.

Volatility was somewhat muted going into the election.  We actually had a few days of a relatively flat market.  I hope this is a sign of decreasing volatility.

The big news this week . . .

ADM announced blow-out earnings.  Their Q1 profit more than doubled.  The company benefitted from higher commodity prices.  Future earnings may be muted because of the recent price declines.

The Yen bounced around this week.  Investors were undecided if they should put on or take off the carry trade.  The US Dollar had a big drop last Tuesday and Wednesday due to the Fed rate cut.  This week the dollar tried to claw back some of those losses.

Recent economic data indicates US manufacturers are going through their worst slump in 25 years.  It’s the fourth decline in as many months for the manufacturing data.

The machinist strike at Boeing was finally called off.  It looks like the two groups reached an agreement.  Now they can get back to what they do best . . . building planes.

American Express announced layoffs – 7,000 in total.  Much more frightening, initial estimates on the GM and Chrysler merger.  It might push 75,000 people out of work.

Now for the trade 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.

 KSS December 2008 $30 Puts (KSSXF)
This was a new trade alert issued on Friday.  The stock’s basically moved sideways over the last few days.  I’m expecting the fall to start as news of poor holiday spending picks up.  Resistance is $38 and $40.50.  Support is $30 and $25.

  BP December 2008 $35 Puts (BPXG)
Oil prices rallied as OPEC started cutting production.  This caused most major oil company stock prices to spike (short-term in my mind).  BP traded right through both of our resistance levels.  Only the most aggressive traders should be holding this position.  As a note, I’m still expecting oil prices to fall with a weakened economy.

  MRK November 2008 $30 Calls (MRKKF)
MRK moved up along with the rest of the market on the rally over the last 6 days.  Last Friday we traded above the first resistance level – the options showed a gain of 116%.  Congratulations to everyone who exited with a profit.  We’re now in the money on this option.  If you still hold it, watch closely.  The option expires in about 2 weeks.  Take profits when you’re able.  Support is at $27.  Resistance around $31 and $32.50.

  JCP January 2009 $30 Puts (JCPMF)
JCP rallied back above 20 this week.  Congratulations to everyone who took a profit below the $20 level.  Peak gain was 471%.

Parting Shots…

More subscriber questions:

It seems like every time I get a trade alert, I go to my brokerage account online to make a trade, the ask price is way more than what the trade alert says to buy it for.  Do you have to make a trade within a few minutes of receiving the trade alert?

This is a great question.

When we make a trade, I’m looking at the fundamental and technical movements for the company and the stock.  I try to describe all of these key points in my trade alert. Some of these ideas will move a stock right away, others take time.

I’m trying to get us the best bang for our trading buck.  But remember the markets are constantly moving.  This last month everyone’s seen the major markets turn on a dime. We’ve seen volatility like never before.  This is far from normal, and there is little we can do about it.  Keep in mind, sometimes the market moves with us and sometimes against us – truly a double edged sword.

I’d recommend putting on a trade as quickly as possible (if you like the idea).  But also watch the “Buy up to” price closely.  I think paying more than that amount could hamper your potential profits.

So what do you do if the price is higher than we recommend?

First, watch the option price.  Sometimes you’ll see it move up and down considerably on the day of the recommendation.

You can also wait a day or two before putting on your trade.  I know some of our subscribers wait a few days before getting the option at their entry point.

If you find yourself in the unique position of not being able to get in at all, don’t fret. There’s always another trade to make.  Let the old one go . . . a new trade’s always on its way.

Category: EOT Update

About the Author ()

Comments are closed.