EOT Position Update – October 5, 2011

| October 5, 2011

October 5, 2011

Market Snapshot

Sometimes I wonder why people are shocked by the market’s volatility.

We’ve clearly entered into a time of more volatile trading.  Just look at what happened yesterday…

The Dow was down more than 200 points to start the day.  And then, over the last few hours, it rocketed higher by more than 400 points.  It closed the day with a solid gain!  That’s just wild…

Here’s the thing…

I’ve heard a lot of people calling yesterday’s reversal a turning point for the market. They think this was a capitulation day and the markets will move higher from here.

Well, I’m not buying it.

Remember, the markets were extremely oversold and due for a bounce.  But the overall trend of the market is still down.  And nothing that’s happened over the last few days has convinced me otherwise.

What’s more, today traders are optimistic the Europeans will be able to find a solution to Greece’s debt problems.  But if history is any guide, next week that optimism will be shot when they decide their latest plan doesn’t fix Greece’s problems either.  And then the markets are going to sell off again…

Look, the bottom line is I don’t believe this rally has legs.  I think stocks are going to move lower in the short run.

As a result, we’re using the market rebound as a buying opportunity.  In fact, we sent out a trade alert earlier today to profit from the market’s next leg down.

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.

  APD November 2011 $70 Puts
APD is our latest trade.  This basic materials stock is ripe for a big decline as economic conditions continue to worsen.  Take a look at the trade alert for more details… Resistance is at $83 and $85.  Support is at $72 and $65.

   GOLD December 2011 $80 Puts
GOLD fell more than $7 yesterday to under $90.  Our option spiked up to a peak gain of more than 50%!  And I’m expecting even bigger gains down the road.  You see, GOLD is clearly trading in lock step with gold and silver prices.  And I believe the US Dollar will continue strengthening and put downward pressure on precious metals. Continue holding for bigger gains ahead.  Resistance is at $105 and $111.  Support is at $85 and $70.

  CNH December 2011 $40 Calls
CNH fell apart over the last week.  As you know, CNH makes most of their money from agricultural equipment sales.  So, their stock is extremely sensitive to the price of commodities like corn, wheat, and soybeans.  Unfortunately, the USDA announced they had underestimated the amount of corn stored in the US by about 200 million bushels!  Obviously, when you find an extra 200 million bushels of corn sitting around, it’s going to drive corn prices down.  And when corn prices fall, equipment makers like CNH are going to go down with it.  As a result, CNH closed below our $25 resistance. That’s the cue for conservative traders to cut losses.  More aggressive traders may want to hold on to see if CNH can stage a bounce back rally over the next few months.  Resistance is at $40 and $45.  The next support is at $21.50.

  N October 2011 $25 Puts
N hit a new low of just over $25 this week.  That’s good news for our put options. They’re moving higher as N continues moving lower.  It’s clear that N is still locked in a strong downtrend.  And I’m expecting it to take the next leg down soon.  Remember, the last day to trade these options is October 21st.  So, keep an eye on these options and sell into any dip below $25.

Category: EOT Update

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