eot-position-update-November-5-2014
November 5, 2014
Market Snapshot
The midterm elections are over. And it looks like Wall Street is happy with the outcome.
More importantly, there’s strong seasonality for stocks during the 4th quarter of a midterm election year and the 1st quarter of the following year.
According to the Stock Trader’s Almanac, the S&P 500 has averaged a 16% gain from now until the end of the 1st quarter. Needless to say, it appears the stock market rebound that began in mid-October will continue to pick up steam.
Amazingly, the S&P 500 has already recovered the 10% pullback. And it’s even made a new 52-week high this week.
The way I see it, 3rd quarter earnings are the main reason for the rapid pace of recovery…
According to Factset, 78% of the companies in the S&P 500 have beat their 3rd quarter earnings estimates. That’s well above the 59% we typically see beat estimates.
The large number of companies beating expectations isn’t surprising. Earnings estimates had been drifting lower for weeks in advance of the actual reports. The bar was so low it was nearly impossible for these companies to miss these earnings.
Don’t forget, low interest rates and strong cash flow have given companies plenty of money to repurchase their own stock. And companies in the S&P 500 continue to take advantage of this cheap money to inflate earnings per share and keep investors happy.
But it’s not just earnings that have this market flying high…
There were plenty of hedge funds that were caught on the wrong side of the reversal in mid-October. Now they’re at risk of underperforming the market for the entire year.
We’re already seeing lots of money manager making their bets on small caps and other areas with big upside in hopes of boosting their performance before the end of the year.
The result is a massive influx of money that should propel US stocks higher through the end of the year. Keep an eye out for a new trade later this week.
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.
GLOG February 20th 2015 $20 Calls
GLOG enjoyed a nice snap back rally after our recommendation. But it hasn’t been able to break out of the intermediate term downtrend. This downtrend has been in place since it made an all-time high of $32.41 back on July 1st. But it’s only a matter of time until it breaks through. The good news is that aggressive traders still have plenty of time until this option expires in February. Resistance is at $24.00 and $28.00. Support is at $14.00 and $13.00.
CVX December 19th 2014 $120 Calls
CVX is in the same boat as GLOG from a technical point of view. It has snapped back from oversold conditions and it’s now attempting to break out of a downtrend. Our option hit a new high of $2.64 on Friday. That’s good for a gain of 65%. It still looks like CVX will make a run at the 200-day moving average before these options expire in December. Look to exit this trade around $122.00.
DAL November 21st 2014 $37 Calls
DAL hit our upside price target of $41.66 yesterday. Aggressive traders that held onto these call options through the correction have been rewarded with a monstrous 253% gain! Congratulations to those of you who cashed in on this trade.
Category: EOT Update
