Dear Bottarelli Research Member,
Good morning. Until we have some sort of clarity or resolution in the ongoing European debt crisis, I feel it’s best if we keep our trading light. After all, the story seems to change every hour, which has market-moving consequences that blindside even the most nimble traders. Add into the equation that the latest round of earnings have been weak (see Apple, Netflix, Amazon, Cummins, and IBM) and this certainly isn’t adding any positivity to the markets. As you surely know, markets hate uncertainty. And right now, uncertainty is all we’re getting on a day-to-day basis. To my eye, the S&P chart continues to look bearish.
This morning, the markets moved up on the news that Germany’s Bundestag (their lower house of parliament) approved Chancellor Angela Merkel’s plan to strengthen the euro zone rescue fund. This sets up increased bargaining power for negotiations at a key euro summit in Brussels. Yesterday, the news was that the EU was doomed. Today, we’re seeing a glimmer of hope. But either way, trading is now totally dictated by whatever news comes from overseas. This makes trading a lot more difficult than normal. Therefore, the best action plan is to stay light, remain protected, and play two-sided positions. Until the volatility becomes less severe, which is a direct correlation to the heightened level of uncertainty, this is the only logical trading maneuver.
As it stands now, we’re holding an earnings play on Avon using the 23/24 Strangle. We’re also holding ULTA calls, speculative GMCR calls (going into earnings tonight), and protective SDS calls. While I can’t say I’m thrilled with what we’re seeing with GMCR, our last hope is that they come in and blow away earnings and the stock pops. As I mentioned, this is a pure speculator’s play. Now, if GMCR reports bad earnings and it’s revealed that the news leaked ahead of time, people will go to jail over this. It’s manipulated insider trading. But for now, let’s cross our fingers that earnings come in strong.
In the meantime, we’ll also keep an eye on our favorite trading candidates, but don’t expect a lot of new trades. Right now, the name of the game is wealth preservation. Let’s monitor the action and when the time is right, we’ll jump back in. But right now, sitting tight is the best advice I can offer.
Until we know more…
Lock and load!