eot-position-update-October-1-2014
October 1, 2014
Market Snapshot
The 4th quarter got underway today. And the seasonal weakness we often see this time of year reared its ugly head.
Right now we’re looking at US large-cap stocks and the US Dollar as the things showing the most strength. While at the same time, there is weakness in small-cap stocks, Europe, and high-yield debt.
And we’ve even seen some weakness in the latest economic data. That’s forcing everyone to question the likelihood corporate profits come up short of expectations in the third quarter.
What’s more, the Fed’s ‘dot plot’ of interest rate expectations still boggles my mind.
Let’s see how the economy, stock market, and long term interest rates react once the Fed’s bond buying program ends before we start forecasting strong economic growth and a need to increase interest rates within the next 12 months.
It’s hard to imagine a scenario where US growth is going gangbusters while ongoing weakness in Europe and other places is holding back global economic growth.
I believe the Fed is premature in their forecast that everything will be fine when they end QE. It has clearly sent the wrong message to investors.
Right now, investors’ words and actions are going in opposite directions. More investors than normal still say they’re bullish while the number of people that are bearish is below the historical average.
Yet, their actions as far as safe haven assets outperforming riskier assets, a drop in bullish momentum, a decrease in market breadth, and a major divergence with high-yield debt all indicate investors are becoming increasingly fearful of a major market correction.
Nevertheless, the S&P 500 just finished its 7th quarter in a row of gains. So, weakness needs to be taken with a grain of salt.
Obviously, investor sentiment is a key component to a stock movement in the short term. A stock can have great fundamentals, but if investors aren’t willing to buy, the stock’s not going to move up.
So, the bottom line is the long-term trend for large cap US stocks is up. But there a signs that a bigger correction could be in the cards.
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.
DAL November 21st 2014 $37 Calls
DAL had been holding right around $36.00 since I recommended buying calls on the stock last week. It appeared to be setting up to rebound after it had undergone a 15% correction.
Then Ebola… news that the CDC confirmed the first case of Ebola in the US sent travel industry stocks tumbling lower.
Obviously, this was an unforeseeable incident and changes the outlook for DAL and other airline stocks. The fact is, some people will put off travel or at least avoid airports and other areas they perceive a higher risk of coming into contact with the virus. And it also changes investor sentiment toward the travel industry…
The selloff today triggered both of the support levels… that’s our cue to sell this option to close out the trade and look for better opportunities.
AAPL October 17th 2014 $105 Calls
AAPL has formed a nice consolidation since the iPhone 6 launch. The weakness in the market hasn’t helped matters… but AAPL is holding at around $100. If large caps do lead a rebound, then AAPL should be at the head of the pack. Continue holding… Resistance is at $105.00 and $110.00. Support is at $95.00 and $94.00.
Category: EOT Update
