Monday Morning
Let’s see what kind of trouble we can get into this week!
As I mentioned last week, I don’t think we’ve seen the last of the VIX so I’m expecting at least one and maybe two triple digit moves in the next 5 days. That part is easy to predict, the real trick is guessing direction.
I’ve already made a firm “I have no idea” bet by pulling most of our stuff off the table in the last 10 days and we are pretty well split between puts and calls on the remainder. The thing that struck me in doing the Monthly Wrap-Upwas that I’ve only got 5 open regular stock positions and one of those is a Google that I’m getting called away from at $370 from way back. That’s much more bearish than usual!
Asia was a mixed bag this morning with my favorite exchange, the BSE, positng an all-time high. Korea’s GDP is 4.8%with a record trade suplus and those guys live right next to North Korea so blaming Kim Jong Il for being a drag on our economy is just a joke!
The Phillippines got hit with a devastating typhoon and their markets are doing better than ours as well. The weak dollar is still causing a drag on Asian export companies but business is booming on the other side of the world otherwise.
Europe is having the same trouble we are with overall new car sales slumping while Toyota’s sales gain 11%. Renault (the guys who were going to save GM) is off 32%! A big warning sign in Europe is jobs going up while manufacturing slows – that’s dropping productivity in 1/4 of the world’s economy!
PFE has problems today (see below) but don’t let people tell you that’s what’s wrong with the Dow, they are one of the lowest weighted components.
Merger mania continues with BK buying MEL bringing $16.6T in assets under one roof in one of those deals they’d better get done before a new administration takes over. Here’s where the problem is – you are putting too much money in the hands of too few people.
The banks get bigger, gather more assets and cut staff to save money so the assets under management per employee skyrockets which drastically increases the chance that one of those 40,000 employees makes an Amaranth sized mistake. Recipe for disaster (the whole consolidation of the industry, not BK in particular) is all I’m saying…
My old favorite, STN, is being taken privateand QCOM is making a couple of small buys I approve of. We’ll make a spread play in comments once STN settles down, probably around $81.
The markets have been very resilient and I am tempted to call this consolidation but I’d rather see a hard bounce of 12,000 than these weak ticks off of 12,200. The Dow needs to get back over 12,300 before I can get back on board but 12,100 fell briefly on Friday and offered little resistance so be very, very, very careful!
As usual, I’ll pay much more attention to the S&P and that 1,400 line, where the markets will win or lose the battle this week. The NYSE is my other favorite indicator and, being more volatile, tend to give us the early signal. Let’s keep an eye on 8,950 for signs of trouble and a break below 8,900 may be the beginning of the end.
Still, it all comes down to rotation and if we aren’t rotating into the Nasdaq then I don’t like the rally anyway so 2,400 remains the key level there but, like the Dow,I need 2,450 to get me back into the makets. To do that the SOX need to do better than bounce off the 200 dma at 467, like they did on Friday.
Let’s keep an eye on the transports to see if they can retake 2,650 and hold it for more than an hour!
At this point I would rather see oil take another stab at $68 so we can herd all the remaining roaches into our trap before we shut the door. I’m down to just a few remaining puts but stand ready to go with the flow, as long as it’s down. I just cannot bring myself to put a penny into oil going up as the fundamentals simply do not support the price of crude, not even close!
The only fundamental driving the price of crude the past two weeks is the collapse (yes collapse!) of the US dollar. Just another example of the ostrich nation we live in that you hear almost nothing about this in the press…
It’s worse than you think – yes worse – and here’s a preview of my next Nobel Prize winning article on the subject: Housing is only keeping up in price because the dollar is down 10% since last November. Houses are a commodity! Stocks are a commodity! Commodities are a commodity!
There is a 10% fantasy built into everything you own because you are under the illusion that the dollars you have in your pocket and the dollars you see in your bank statements are worth 100 pennies – but they are not!
And I’m not just talking about the fact that a dollar buys 50% less copper than it did last year – just try leaving the country with that funny money of yours and see what you can buy in any of the 50 economies around the world that are outperforming us!
Gold is through my $650 roof and very likely on the way to $750 again if no one rescues the dollar this week so let’s keep a close eye on that line but the ABX Dec $27.50s need tight stops regardless to protect a double.
So all that being said, I’m still hoping we can shake off all these terrible things and break orbit. If we weren’t at these very high levels, all the above problems would have decimated the markets.
Since we are so near weightlessness, it is very hard for bad news to get a grip and a small booster rocket of good news can still take us higher so I will remain on the sidelines but still hoping to pick up a few bargains as long as the markets hold the above levels.
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The WSJ has the most amazing chart on the retail sector. Whoever wrote this thing should call me as I would be happy to build a service around and expanded version of this. It’s a little quirky with pop-ups but very interesting to use!
I’m liking the growth at JOSB (12/7), especially the 23.6% increase in on-line sales, which I didn’t expect but the 9.6% November sales growth missed analyst’s estimates of 10%. Well wah wah! Like those guys have a clue anyway – the comany also missed Q2 by 30% and are down 35% from the April highs even though next year’s earnings are on track to be 25% over last year’s earnings.
I think the company’s doing a great job of managing growth and are likely to have a beat. But – the options are outrageous and I refuse to pay for them so I’m going to let someone else buy them for me: I take the stock for $29.69, sell the ridiculous July $30s for $4.40 and buy the Jan $30s for $1.75. If they miss, I quickly sell the July $25s and ride it out and, if they hit, I get called away with a 10% profit in 8 months plus whatever I make on the January calls.
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Whoever is selling FD please keep doing it as I missed them on the run-up. The drop is in large part due to the fact that they’ve recently scrapped the May’s name and shoppers are slow to warm up to Macy’s as it’s “too New York” in some parts of the country. I’m waiting on this one but I may regret it…
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ANF (2/20) is another Christmas gift if it comes down. Same store sales were off 3% because they didn’t offer discounts and the stock is down because analysts can’t do math: Selling $1Bn at a 20% discount is NOT better than selling $970M at no discount. I know Mr. Analyst, math is hard but please try to keep up!
Meanwhile Internet sales were up 45%, this is something called pricing power, explosive growth and industry leadership and this one I won’t wait for. I like 2x Feb $72.50s for $2.75 and I will sell 1x Jan $70s(currently $2.65) right away and more if I run into trouble (below $67). My logic is: If the $2 out of the money Jan 70s have a $4.60 premium, then if my caller goes in the money I should have more than enough to premium left cover him. A hedgy play is to take the whole spread for a dime and see what happens. I will track both.
This, by the way is a preview of strategies we will be employing on the pro site, slightly more complex plays for this risky environment…
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OK, I’m going to buy an energy stock. I’ve been looking to hedge my puts with something and I love ESV (thanks to Optionstrader1 for pointing this out), a rig co. that’s expanding rapidly and raising rates.
Earnings are out 2/22 so I like the Mar $55s for $4.60, selling the Dec $55s for $1.50 to knock off some premium as an entry position. As this is a balance play against existing oil puts, so I do hope it goes down short-term at least!
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In comments this weekend, Clare was right on top of the fact that PFE is in BIG TROUBLE as their BIG cholesterol killer, Torcetrapib, killed enough people to be pulled from development. That is never a good thing…
It will probably be too late to short PFE in the morning but let’s pay close attention to a possible momentum play at the open and a possible call if we decide to be brave enough to call a bottom. I think $23.50 should be about right.
This is a long-term problem as the new drug was supposed to replace $13B Lipitor sales when they go off patent in 3 years and only impacts projected earnings.
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I’m liking OXPS again, the Jan $30s are just a buckso I’ll enter here and see how they handle the 200 dma at $28.
I knew we should have grabbed BIDU last week. They just announced they will be entering the Japanese market so that train will probably leave the station this morning.
ALTR got an upgrade, could help the SOX!
Let’s keep an eye on this week’s Barron’s feature, IBM. If that doesn’t get them going then there is little hope for the market!
YHOO is another one to watch as they are ridiculously undervalued and the lack of interest in anyone taking a chance here does not bode well for the markets.
Have a fun trading week but let’s be careful out there!
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