EOT Position Update – October 24, 2012

| October 24, 2012

October 24, 2012

Market Snapshot

So far, third quarter earnings season hasn’t been kind to stocks.

It’s been especially brutal for large cap stocks in the Dow.  15 out of the 17 Dow stocks that have reported earnings have gone down on the day they released earnings.

Obviously, it’s not good for the market when the biggest and best companies are having a horrible earnings season.  Not surprisingly, we’ve seen the technical picture take a turn for the worse over the last few days.

As you know, the S&P 500 has been in a trading range since QE3 was announced back in mid-September.  Since then, the large cap index has bounced between support at 1,425 and resistance at 1,460.

Over the last few days, the S&P nosedived below support at 1,425.  Now that this key support zone has been broken, it’s a clear indication the markets are heading for a rough patch in the short term.

At this point the S&P has already dropped to the next support level at 1,408.  And there are multiple levels of support just below current levels at 1,395 and the 200-day moving average at 1,375.

But even if the S&P doesn’t fall off a cliff, it will likely struggle to get back to the recent highs.  Don’t forget, one of the principle tenants of technical analysis is once a support zone is broken it becomes a resistance level.  And 1,425 on the S&P will be a huge hurdle to clear going forward.

Despite the ugly overall tone of the market, there have been a few bright spots.  Most notably, bank and homebuilder stocks are still in an uptrend thanks to a resurgent US housing market.

The way things are shaping up, there will be opportunities to for us to profit with calls and puts in the weeks ahead.

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.

  PHM April 2013 $19 Calls
PHM is holding up well as the stock market has tumbled lower over the last few days. In fact, housing and homebuilding stocks are one of the few bright spots lately.  We’ll get to see how much PHM has benefited from the housing markets revival when they release quarterly results later this week.  Go ahead and buy these options up to $2.25 if you haven’t already.  Resistance is at $25.00 and $30.00.  Support is at $15.00 and $13.50.

  BGS February 2013 $30 Calls
BGS is on the comeback trail.  In fact, the stock has been up six out of the last seven days.  Obviously, the post-secondary offering skid is now a thing of the past.  BGS and our call options should continue moving higher from here.  We still have plenty of time until these options expire in February.  Aggressive traders should continue holding… Resistance is at $33.50 and $35.00.  The next support is at $28.00.

Category: EOT Update

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