EOT Position Update – October 29, 2008

| October 29, 2008

October 29, 2008

Market Snapshot

Today the market rocked back and forth, quite undecided on what direction to take. This follows Tuesday’s amazing 889 point gain in the Dow.  Nearly an 11% move, I must say it was amazing to watch.  Today we ended the day at 8990.

The big news this week . . .

Late last week we watched the market plunge further, closing Friday at the week’s lows.  Boeing reported earnings down 38% because of the machinists strike.  Amgen and Celgene both beat their estimates.  Then Goldman Sachs announced layoffs of 10%.

The Yen continued its march higher against every other currency in the world.  The US Dollar also rallied, but not as much as the Yen.

Global markets are falling and some are more volatile than the US markets (if you can believe it).  Look at Russia which is down some 70% on the year.  Or better yet Japan. Their market is trading at levels last seen in the early 1980s!

Undaunted, today the US Federal Reserve took interest rates down to 1.0%.  They made this bold move in an attempt to keep the US economy from a prolonged recession.  This also indicates the threat of inflation is nil, especially with commodity prices falling on declining demand.

Now for the trade 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.

 BP December 2008 $35 PUTS (BPXG)
This was a new trade alert issued last Friday.  On Monday we had a good pop in the option price as the stock opened lower and closed around $40.  Unfortunately the stock bounced higher on Tuesday’s big market move.  Today we closed above the first resistance level.  Resistance is $47.50 and $52.50.  Support is just over $37.50 and at $35. (See our parting shots section for more BP related details)

  MRK November 2008 $30 CALLS (MRKKF)
After breaking below support last week we got a nice rally today in the stock.  If you didn’t get out last week for a profit, you might still have a chance.  Support is at $27. Resistance around $31 and $32.50.

  JCP January 2009 $30 PUTS (JCPMF)
JCP closed below 20 just a few days ago.  The spending environment isn’t looking good for retailers.  Our option hit a new Peak Gain over the last week of 490%.

  GT January 2009 $15 PUTS (GTMC)
Goodyear Tire continued falling last week.  It closed just two days ago below $8 per share.  Good for a new Peak Gain of 262%.

Parting Shots…

More on BP.

Last Friday we issued a trade alert on BP.  We called for the stock to trend lower.  The idea is simply as oil prices fall, so will BP’s profits.  Just yesterday they announced earnings and put forth a stunning 83% gain.  The stock climbed higher on the news breaking through our first resistance level.

Does this mean we got the trade wrong?

Not by a long shot.  See BP announced revenue of $104 billion and earnings of $8 billion.  Not bad (big numbers for sure).  But here’s the problem.  Their production was almost flat with 3.7 million barrels of oil being pumped from the ground.

The key I was looking for is their per barrel price.  Last quarter it was $111 dollars (that’s how much they sold each barrel for).

I don’t know the last time you looked at oil prices, but let me assure you they are nowhere near $111.  As a matter of fact, they’re down almost 45% from that level.  As I look right now were in the low $60s.

Once the market realizes next quarter won’t be anywhere near as good as this quarter, the stock’s bound to take a dive.  And a big dive at that.

Category: EOT Update

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