EOT Position Update – September 14, 2011

| September 14, 2011

September 14, 2011

Market Snapshot

Stocks are struggling to do much of anything.

The bulls have managed to string a few positive days together.  But I’m not expecting it to last… I think we’ll see more volatile – up one day and down the next – action.


Not much has changed over the last month.

At this point, Greece still looks like it will default on its debts… The Euro Zone and the Euro are on shaky ground at best… And the global economy is in a cyclical slowdown…

In other words, there’s not too much to be excited about right now.

The truth is, the US has a 50/50 chance of falling into another recession.  That’s how often a cyclical slowdown turns into a full blown recession.  But it’s not looking good…

Consider this…

When the most recent cyclical slowdown began, we hadn’t fully recovered from the credit crisis of 2008.  Remember, unemployment is still high and job growth is anemic. And GDP growth is already weak.

So, it won’t take much of a slowdown to push us into a recession.

What’s more, there isn’t much Fed Chairman Bernanke can do about it.  And the one thing that might save us, fiscal support in the way of tax cuts and government spending, isn’t likely to make it past the Republican controlled House.

Ironically, not acting to cut taxes and increase government spending now will likely result in the one thing Republicans don’t want… A larger budget deficit and rising national debt!


A recession will cause a major shortfall in tax revenue.  And a shortfall in tax revenue will have a much greater impact on balancing the budget than cutting a few billion in spending.

Here’s the bottom line…

I’m becoming more pessimistic about the likelihood of the US pulling out of this slowdown without dipping into a new recession.  The good news is it’s just as easy to profit from falling stocks with put options as it is to profit with call options when stocks are soaring!

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.

  CNH December 2011 $40 Calls
CNH is our latest trade.  It hasn’t moved much yet, so feel free to buy this option if you haven’t already.  Agricultural equipment sales slowed a bit over the last few months.  As a result, agricultural equipment maker CNH got hammered.  But, with the USDA forecasting US net farm income to increase 31% and top $103 billion this year, we should see sales accelerate into the end of the year.  Resistance is at $40 and $45.  Support is at $25 and $21.50.

  N October 2011 $25 Puts
N broke above the downtrend line a few days ago.  And it pushed past our $31 resistance level.  Conservative traders should sell this option now to conserve capital. More aggressive traders may want to continue holding.  Tech stocks have had a few good days after being hammered for months.  I’m not convinced we’ve seen the worst for tech.  If the economy continues to slow, N and the entire tech industry are going to selloff again.  The next resistance is at $35.  Support is at $25 and $20.

  BAS October 2011 $25 Calls
BAS hasn’t bounced back like I thought it would.  Why?  Oil prices are stuck below $90.  As a result, oil and gas companies are slowing down.  That means less business for BAS and other services companies.  The good news is demand for everything but drilling rigs increased in August.  I think BAS will come charging back once oil prices start climbing.  The problem is our options will likely have expired long before that happens.  I’m pulling the plug on this trade.  Go ahead and sell your BAS call options now to conserve capital.

  WPRT October 2011 $30 Calls
WPRT’s bullish momentum continues to send the stock and our option higher.  The co-marketing program with Royal Dutch Shell (RDS) is great for WPRT.  It’s also a huge step toward accelerating the use of natural gas as a transportation fuel.  Our option is now in the money and we hit our $30 resistance level.  Conservative traders should go ahead and capture a small gain on this option now.  More aggressive traders should continue holding for bigger gains ahead.  The next resistance is at $35.

Category: EOT Update

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