GM - $29.35 General Motors ** No Stop **
Another month of car sales is history and GM managed to sell slightly more than February but not quite enough to turn investors bullish on the stock. The mildly positive auto-sales data on Friday failed to push GM back over resistance at $30. This has turned into a serious resistance level and with gasoline prices rising the odds are good GM is not going higher.
My long term view is very bearish on the automakers due to the potential for $100 dollar oil over the next year or so. If $2.50 gas is bad for business $5.00 gas will be a death knell for gas guzzlers.
With earnings approaching there is a good possibility GM will reveal some more negative details about its profits and its pension/healthcare problems.
I am using the 2007 leap puts because I think this will be a long term problem for GM and the other car makers as well. We could easily see prices in the teens before this put expires.
2007 $30 PUT VGN-MF Currently $7.20
Entry $29.35 (4/04)
GM Chart - Weekly
Chart - 30 min
CAL - $11.62 Continental Airlines ** Stop $14.50 **CAL rallied on the dip in oil and another 2000 layoffs to $12.13 on Thursday and that was enough to trigger our put entry at $12. This is month long resistance and I believe the rebound was artificial given the new higher oil prices.
The airline industry as we know it is doomed. It is only a matter of time before it becomes too expensive to fly due to dwindling oil reserves and the tens of thousands of current routes will be cut in half and possibly half again. There is no substitute for oil to keep the planes in the air and that means costs will continue to skyrocket. Those airlines with defined benefit pension plans will be stuck with shrinking routes, more layoffs, higher costs and lower profits. In the not too distant future air travel for fun will be a fond memory and heading off to grandma's for the weekend or to Vail for skiing will simply be too expensive to justify.
Business travelers will be the majority of the fares and the high cost of those fares will restrict them to only the absolutely necessary trips.
I am very bearish on the future of the airlines and it is only a matter of time until the rest of the world catches on to the coming reality.
2007 $10.00 LEAP Put OVJ-MB @ $3.10
No insurance call due to the low price on the Leap.
Entry $12.00 (03/31)