EOT Position Update – September 28, 2011

| September 28, 2011

September 28, 2011

Market Snapshot

Just when we were beginning to think the European debt crisis was coming to an end, it comes back to life.  It’s like something out of a horror movie…

I’m beginning to worry that investors are the ones investigating the strange noise coming from the basement.  Because we all know what’s going to happen next… Somebody is about to get killed.

To be honest, I hate horror movies…

But I’d gladly watch every Friday The Thirteenth, Nightmare On Elm Street, and Halloween movie ever made if we could rid ourselves of the European debt crisis and move on with our lives!

Sadly, I don’t think watching horror movies will solve our problems.  And until we figure out how to bring this crisis to an end, Europe’s debt crisis will continue to haunt the market.

Speaking of scary… Take a look at a chart of the VIX.


As you can see, volatility spiked to the highest level since May of last year.  And even more disturbingly, it’s remaining elevated.

What’s more, the chart looks like a continuation pattern.  If the chart pattern plays out as expected, volatility will spike again soon… And that’s bad news for stocks.

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.

   GOLD December 2011 $80 Puts
GOLD bounced up to resistance at the 50-day moving average around $101 yesterday. But it’s been sold hard ever since.  That’s good news for our put options.  Gold and silver miners are in a world of hurt right now.  Gold and silver prices are under pressure from the rising US Dollar.  And I believe the US Dollar will continue to rally until the European debt crisis is resolved.  And so far, there’s no indication that situation will be resolved soon.  Continue holding for the next leg down.  Resistance is at $105 and $111.  Support is at $85 and $70.

  CNH December 2011 $40 Calls
CNH is back down near the August lows around $27.  This level is a strong technical support zone.  And as long as CNH holds above $25, I’m not going to panic.  Don’t forget, there are still bullish fundamentals in the Agribusiness sector.  And I’m expecting a solid year-end rally to send CNH higher before long.  Continue holding… Resistance is at $40 and $45.  Support is at $25 and $21.50.

  N October 2011 $25 Puts
N’s chart looks like a bearish continuation pattern to me.  It had an initial thrust lower that ended about the time I recommended buying puts in August.  Since then, it’s consolidated near the lows.  But it’s clearly still in a downtrend.  And I’m expecting N to make another move lower soon.  What’s more, the stock is still overvalued. Aggressive traders should continue holding for the next leg down.  The next resistance is at $35.  Support is at $25 and $20.

  WPRT October 2011 $30 Calls
WPRT announced a deal to make engines for Ford’s (F) F-250 and F-350 Super Duty pickup trucks.  This is another positive step for WPRT.  They’re striking deals to make natural gas powered engines for all of the major truck manufacturers.  Clearly, they’re going to make a lot of money building engines as natural gas as an alternative transportation fuel gains acceptance.  Our options are in the money with less than a month to go.  Start looking for a good exit point to sell this option when the stock is near $34 or $35.

Category: EOT Update

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