EOT Position Update – October 21, 2015

| October 21, 2015

Market Snapshot

Right now new information is coming at us on a daily basis.  And it’s a challenge to make heads or tails of it.

The environment is so difficult that many hedge funds are throwing in the towel.  More than 400 hedge funds simply shut down and returned money to investors in the first half of the year.

Here’s what we know…

The global economy is struggling.  Consumers aren’t increasing spending.  Inflation is non-existent.  And the jobs market is weakening.  Real unemployment is still about 10% when you count people that have left the workforce and those working part time for economic reasons.

We’ve known for some time that economic growth is slowing in China and other emerging markets.  What’s more, just about every major developed economy outside of the US has been dealing with issues as well.

It was only a matter of time until the weakness in the global economy had an impact on the US economy.  Now we’re seeing this impact on US economic data.

Industrial production slumped in September and a gauge of future industrial production shows this slump is likely to continue.  And the consumer spending data isn’t any better… retail sales grew a paltry 0.1% in September after being unchanged in August.

That’s six out of the nine months so far in 2015 that retail sales slowed or were flat from the previous month!

This weakness is hitting the top and bottom line across a wide swath of corporate America.  We’ve already seen companies like Wal-Mart $WMT and several luxury retailers miss expectations by a wide mark in the 3rd quarter.

The bad news is so widespread that it was actually good news for stocks.

How can that be?

Simple, there’s no chance that the Fed is going to raise interest rates when there economy is slowing and inflation is running below their target.

So, the poor economic data has pushed out the timing of the first Fed rate hike until at least sometime in 2016.  The continuation of the Fed’s zero interest rate policy, or ZIRP, is being viewed as beneficial to stocks.

As a result, the S&P 500 has ticked higher over the last few weeks as investors bought the most beaten down shares in the energy and materials sectors.


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 moved lower from the resistance level of the downtrend.  They’re report earnings tomorrow morning.  Keep an eye on this stock for a big move.  The support levels are at $65.00 and $62.50. Resistance levels are at $72.25 and $75.00.

C November 20th 2015 $50 Puts

Citigroup’s earnings were saved by cost savings, fewer loan loss reserves, and a drop in legal expenses from settling mortgage lawsuits from prior to the financial crisis a year ago.  But everything else in this third quarter earnings report was awful…. lower revenue, falling assets, fewer loans.  If the market reverses lower, C and other banks should be some of the hardest hit stocks.  The support levels are at $49.00 and $47.00. Resistance levels are at $52.75 and $54.00.

AAPL November 20th 2015 $120 Calls

Apple had a good day yesterday.  It moved 1.8% higher ahead of their 3rd quarter earnings report on Thursday after the markets close.  It will be interesting to see what the tone of the report will be.  Will record iPhone sales be enough to send the stock soaring?  Or will weak Chinese sales sink the stock?  We’ll find out tomorrow. The support level at $109 is holding. Support is at $109.00 and again at $105.00.  Resistance is at $120.00 and $130.00. 

Category: EOT Update

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