EOT Position Update – September 2, 2009

| September 2, 2009

September 2, 2009

Market Snapshot

Right now there are a couple of competing fundamental and technical forces keeping the market stuck in neutral.

First up are the fundamentals.

As usual, new reports are hitting the market on a daily basis.  By and large, they have been very positive.  Over the last few months, similar news has triggered big rallies in the market.  But we haven’t seen the same results over the last few weeks.  Why the change?

The big difference is expectations.

Investors are grappling with the effects of government stimulus programs.  Some like ‘Cash-for-Clunkers’ are being viewed as a short-term positive, but a long-term negative.

The fear is the program caused car buyers to buy sooner rather than later.  Essentially, borrowing from future sales to boost sales today.  The end result could be a temporarily inflated manufacturing number and worse than expected car sales going forward.

We’ll see how it plays out but I think the fears are being overdone.

Now for the technical picture.

The NASDAQ’s leading the S&P 500 and the Dow higher this year.  The rally off of the March lows put it in an intermediate term uptrend.

Now take a look at this chart of the NASDAQ.  You’ll see it’s rallied back to its long-term downtrend line.  This trend started back in October of ’07.  And the longer the trend, the more powerful it is.


The downtrend line represents the last line of defense for bears.  They’re still contending this is just a short-term bull market inside of a secular bear.  If the NASDAQ makes a convincing move through and closes above the downtrend, the bears case gets much weaker.

With so many competing forces, it’s hard to say if the next move will be higher or lower.  But until the market tells me otherwise, the odds favor another move higher. Either way, I’m expecting more volatility before we see the next big move.

Now for 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.

  MMM Jan 2010 $75 CALLS (MMMAO)
Our call options on 3M stumbled out of the gate.  But the minor correction isn’t anything to be concerned about.  Something more important than the market selloff happened yesterday.  The ISM manufacturing report registered the first month of expansion since January ’08.  That’s great news for 3M and our options.  Hold tight for a rally in the manufacturing industry.  Resistance is at $75 and $80.  Support is at $65 and $60.

  UEPS Oct 2009 $17.50 CALLS (QBSJW)
Net1 didn’t give in to the market selloff and posted a new high yesterday.  We’ve almost got another 100% gainer on our hands!  The stock’s riding the wave from managements 20% earnings growth forecast.  Aggressive investors should hold on as the share price continues to climb higher.  We already broke above the first resistance level at $18.50.  Next resistance is at $20.25.  Support is at $13.50 and $12.

  INTC Oct 2009 $16 CALLS (NQJQ)
Intel’s management increased their Q3 revenue estimates this week.  It’s great news for our call options.  They hit a new high of $4.75.  Good for a 274% gain!  Only the most aggressive traders should still be holding these options.

Category: EOT Update

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