Option Investor


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So Close But Yet So Far Away  

Oil prices dipped to $52.40 on Wednesday on higher inventory levels and then immediately spiked back to close at a new all time high at $57.20 on Friday. The oil correction was going so well with a -10% drop off its highs but somebody got nervous and pulled the buy trigger early. This put all our watch list entries for energy stocks well away from the triggers but Q2 is still young.

The dip in oil did trigger our short entry on Continental Airlines so it was not a total loss. I also accelerated the entry on GM after the auto sales data out on Friday showed another month of lackluster sales. GM is ramping up incentives to try and push some SUVs out the door but with the high demand gasoline season just ahead and prices moving well over $2 a gallon I predict those incentives will fail. Gasoline futures hit an all time high on Friday at $1.73 and the worst is still ahead.

I am also adding a new short this weekend on Overstock.com. Recent dealings with them have put serious doubts in my mind about their staying power. I will explain in the play description.

DGX rewarded our patience this week with a breakout over $101 that ran to $106 before it cooled. We are up +$8 on that position and it is showing no signs of a pullback.

Adobe is also holding near its breakout highs and any rebound in the Nasdaq should be beneficial to Adobe so I am continuing to hold it. We are up +$4 in that position.

Unfortunately the spike in oil prices sent Federal Express sharply lower and our April $95 put is now $3 in the money. We will need to make a decision on that position by next weekend to avoid getting too close to our insurance expiration.

Meanwhile we will continue to hope for a real pullback in oil over the next four weeks to give us an entry point for the fall run. If the drop is going to come it should begin this week. Otherwise I will need to rethink my strategy on energy.

RIMM spiked up several dollars on Wednesday and erased some of the losses but selling began again as the week ended. I would like to see RIMM back in the $65 level before considering an entry. However, I also hesitate to add any tech stocks ahead of the summer doldrums.

ADSK was dropped last week for non-performance and it promptly gains +$2 and is approaching its resistance at $30.50 but still in its $28.50-30.50 range. Sometimes you just can't win.

Symantec has found a bid! Celebrations are in order. That $20 support level we had been watching was tested and it has rebounded to nearly $22. Maybe the worst is over. We still have 21 months on that LEAP so time is not a factor. Our insurance is a May put so still time there as well.

EBAY is also starting to show some life but I am still not convinced. The $36 level has turned into real support but like the other tech stocks we have the summer doldrums ahead. I am going to pass on reentering EBAY until a real trend develops.

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