EOT Position Update – September 22, 2010

| September 22, 2010

September 22, 2010

Market Snapshot

Watch out!

The bulls seized control of the markets in early September.  And they’ve pushed stocks to their highest levels in months.

It’s caused the S&P 500, Dow, and NASDAQ to clear the upper end of their trading ranges.

But be wary, this could be a head fake.

Here’s why…

The all important transportation industry isn’t breaking out along with the major averages.

Remember, transportation stocks are highly cyclical.  They’re among the first to rally when the economy improves.  And among the first to fall as the economy weakens.

Now, take a look at this chart of the iShares Dow Jones Transportation ETF (IYT). It’s a good proxy for the transportation index.


You can see IYT hasn’t cleared the upper end of its trading range.  This isn’t a good sign.

When key sectors, like transportation, aren’t breaking out to new highs during a market rally, it’s more likely to fail.

Obviously, if transports are able to break out, it would be very bullish.  But until they do, it’s time to exercise caution and not jump the gun.

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.

  CBU February 2011 $22.50 Calls
CBU is still hugging the 200-day moving average support line.  But it should get a bounce soon along with the entire financial industry.  Hold tight for now.  Resistance is at $25.25 and $27.  Support is at $21 and $20.

  PEGA March 2011 $25 Calls
PEGA’s impressive run continues.  Our option hit a peak gain of 246%!  We’ve cleared the first resistance level.  So, conservative traders should have already locked in a big gain.  But aggressive traders should continue holding for further upside.  The next resistance is at $35.  Support is at $16 and $15.

  APOL November 2010 $37 Puts
APOL has been a huge disappointment.  Investors are clearly ignoring reality.  But as they say, the market can stay irrational longer than you can stay solvent.  We’ve hit both of our resistance levels so everyone but the most aggressive traders should have sold to conserve capital.  If you’re still holding these puts, you might want to hold out for the DOE’s decision.  There’s still a huge downside risk for APOL in the next few months.

  SBUX October 2010 $25 Calls
SBUX continues to push higher.  In fact, it’s up 15% in four weeks.  But it’s run into resistance around $26.  Our options are now in-the-money with less than a month to go before expiration.  Aggressive traders should hold out for another push higher.

Category: EOT Update

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