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THE BARBER’S CHAIR: Floyd the Barber presents common sense views on the intersection of politics and the markets.

NO MORE SHUTDOWNS

The last three weeks were very interesting for the markets.  Strong, strong upward movement with a couple of dips in the middle.  Clearly, the markets were pricing in the eventual resolution of the debt ceiling crisis: government reopening with no debt ceiling default.  FYI, Andrew Keene was predicting this all along.

Now the markets seem to be pricing in smooth sailing: either a grand bargain between D’s and R’s, or at least a mini-bargain.  This seems appropriate when very powerful people like Sen. Minority Leader Mitch McConnell (R, KY) state outright that there will NOT be another shutdown soon.  McConnell is up for re-election in 2014. Apparently, he believes it better to be seen as a compromiser in the general election, than as an ideological purist in his R primary.

However, the question remains whether the market’s rosy picture is justified.  Clearly, the market has strong upside momentum.  But, if the shutdown cost the country $24B and 0.5% to 0.6% in GDP, weaker economic numbers will have to be discounted as one time events, for the market to continue strong.

Follow me on Twitter @USKOTM.

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Long Term Trade of the Day

Energen Corporation (EGN) is an energy holding company that operates in the development, exploration and production of oil and natural gas in the U.S. The company’s stock is currently trading around $81.65 in a 52 week range of $41.38-$82.70. The stock has been massively outperforming the market this year, rallying nearly 81% year to date. Options traders seem to believe this run can continue as we have seen extremely bullish unusual option activity in EGN this morning. A large 4 legged spread traded this morning as a trader sold 2,500 Jan 70 puts and 2,500 Jan 60 puts for $1.05 and $0.20 respectively. A 5,000 lot of the Jan 80-100 Call spreads bought for $3.35 were also tied to this order. This is a very bullish order and shows a high level of conviction. This trade is taking on a huge amount of risk to put this position on. We believe that this is a great signal to get long EGN. We will look at a trade that has a better risk vs. reward set up than the block trader got.

Trade: Buy the EGN April 85-95 Bull Call Spread for $3.00
Risk: $300 per 1 lot
Reward: $700 per 1 lot
Breakeven: $88.00

EGN

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Swing Stock Trade of the Day

GNC Holdings Inc (GNC) is a specialty retailer of health products in the U.S. and 54 countries around the world. The company’s stock is currently trading around $55.45 in a 52 week range of $30.92-$55.85. GNC has had a huge run this year, rallying over 66% year to date. Unusual option activity we have seen in GNC today tells us that traders believe there is more upside in store for GNC.  Earlier in today’s trading session a trader bought 2,000 GNC Nov 55 calls for $2.75. This would indicate that this trader believes the stock will head higher through November expiration.  The daily chart of GNC also supports the case for a long in the stock. GNC is trading well above the Ichimoku cloud and the cloud is upward sloping into the future. All of these factors are lining up for a long position in GNC stock.

Trade: Buying GNC stock at $55.45 with a stop at $51.21
Risk: $4.24 per share
Target #1: $57.60
Target #2: $59.70
Target #3: $63.90

gnc