EOT Position Update – October 20, 2010

| October 20, 2010

October 20, 2010

Market Snapshot

Fed, Earnings, and China… Oh my!

We’re not in Kansas anymore Toto…

The markets are caught up in a tornado of uncertainty right now. And who knows, we might just end up in Oz…

First off, the Fed’s plan for quantitative easing (QE) is still driving the market. So when some members of the Fed made cautious remarks about QE yesterday, bulls took some of their chips off the table.

They began to fear the Fed might not provide the $1 Trillion in QE they’re expecting.

But that’s not all…

China’s central bank announced their first interest hike since the 2008 financial crisis. They raised the benchmark a quarter of a point to 2.5%.

This move could reign in speculation in China, hurting demand for basic materials and other commodities.

The result?

A dramatic one day short covering rally in the US Dollar. And a big selloff in the stock market.

It set the stage for a long overdue correction. But not so fast…

Today the markets pulled a U turn… The Dollar plummeted. And a few airlines and manufacturing companies provided good earnings and an optimistic outlook. The unexpected good news sent stocks rocketing higher… In fact they erased most of yesterday losses.

Crazy times!

Most important, the Fed is committed to pushing asset prices higher. They’re going to do everything in their power to avoid deflation. Even if that means creating another asset bubble.

So it looks like the markets are destined to retest their 52-week highs. What’s more, they might and even breakout to new highs. That’s great news for our call options.

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.

  FRX January 2011 $34 Calls
FRX reported earnings yesterday. And the results were nothing short of spectacular. They made $1 per share, easily besting the $0.91 estimate. And on top of that they boosted full year earnings guidance to a range of $3.80 to $3.90. Clearly these bullish estimates should lead to good things for our call options. Hold tight for now. Resistance is at $35 and $40. Support is at $30 and $27.50.

  ADBE January 2011 $27 Calls
ADBE continues to recover from their post earnings selloff. And that’s great news for our call options. A strong market rally to close out the year should drive Adobe and our call options much higher. Hold tight for now. Resistance is at $30.50 and $33.50. Support is at $25 and $22.50.

  CBU February 2011 $22.50 Calls
CBU reported a record setting quarter last Friday. Proving that all banks aren’t created equal. But the market sure seems to be treating them that way. CBU looks undervalued to me. If financials can shake the negative investor sentiment CBU should be off to the races. Hold tight for now. Resistance is at $25.25 and $27. Support is at $21 and $20.

  PEGA March 2011 $25 Calls
PEGA has continued to sell off since rallying to the 200-day moving average. But aggressive traders holding onto these options shouldn’t worry. We still have plenty of time. And I believe earnings growth will catch a lot of investors off guard. We’ll get a look at their most recent quarter’s earnings in a few weeks. So hold tight for now. The next resistance is at $35. Support is at $16 and $15.

Category: EOT Update

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