EOT Position Update – October 6, 2010

| October 6, 2010

October 6, 2010

Market Snapshot

To be perfectly honest, the market’s recent strength has caught me a little off guard.

I’ve been expecting stocks to pull back a bit.  And I was hoping to use the pullback to pick up cheap call options on some of the highflyers.

But the markets have continued to plow ahead.

What I’m seeing now is the pace of the advance slowing.  It seems to be taking two steps forward then one step back.  But the trend is still higher.

The driving force behind the markets latest move is stocks tied to commodities and hard assets like gold and other metals.

These stocks are benefiting from the weakness in the US Dollar.  And fear of the Fed will further devalue the US Dollar by embarking on Quantitative Easing Part 2.

As a result, the dollar continues to get pummeled on a daily basis.

If you look closely, you’ll see the dollar coming into a support zone.  The area is marked by lows hit in late ’08 and early ’09.  If this level doesn’t hold, we’ll likely see the dollar fall another 5% to retest the December ’09 low.

If the dollar continues falling, we’ll likely see stocks tied to hard asset prices lead the markets higher.

However, if the dollar reverses off this support zone, we could finally get the pullback in stocks I’ve been waiting for.

Either way, rest assured I’ll be keeping close tabs on the situation.

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.

  ADBE January 2011 $27 Calls
ADBE is hugging support near $26.  I’m expecting shares to begin rebounding from the oversold conditions soon.  Remember, Adobe’s products are still the dominant force in digital content and print design.  Sit tight for the coming rebound.  Resistance is at $30.50 and $33.50.  Support is at $25 and $22.50.

  CBU February 2011 $22.50 Calls
CBU is holding steady along support of the 200-day moving average.  Financial stocks in general continue to lag the overall market.  The bottom line is… If the market rally is going to continue, financials need to participate.  And I believe they will.  Hold tight for now.  Resistance is at $25.25 and $27.  Support is at $21 and $20.

  PEGA March 2011 $25 Calls
PEGA rallied all the way up to the 200-day moving average this week.  Our option hit a peak gain of 322% so far.  PEGA’s pulled back to support of the 20-day moving average.  This is typically very bullish price action.  Aggressive traders should hold out for bigger gains ahead.  The next resistance is at $35.  Support is at $16 and $15.

Category: EOT Update

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