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Tuesday Wrap-Up

When I said the indexes needed to pull back 5%, I didn’t mean today but we did call this at 4:41 am and hopefully you are almost all in cash like I am.

The yield curve inverted today which totally freaked out the markets. My bad for not noticing this was going to happen as I would have been even more pessimistic in the morning.

No upside trades worked today and all the averages failed at critical levels which bodes very badly for the week. The only saving grace was the very low volume which means all this can be reversed in a day.

An inverted yield curve (the 10 year note is lower than the 2 year note) has signaled 6 of the last 7 recessions so no one wants to be caught with stock until this sorts out.

I do not buy into this indicator as I feel that world cash flow has ruined the value of the yield curve as a tool to understand the US economy in so much as there is no more independent US economy. Half of our notes are sold to foreign investors so these yields are not under our control. The one thing I do feel it indicates is that the Fed is done tightening!

On the depressing side, MSNBC commentator Art Cashin, who I deeply respect, said we may be stuck in a multi-year trading range trapped between DOW 10K and 11K as we have been since Q4 ’03. On the other hand, if we can get comfortable with that, there is a lot of money to be made, but it will have to be lots of little hits.

I still like to feel that we are consolidating for a breakout but Art is much smarter than I am and he is very concerned that this is the case.

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OK, what positions do I still have open?

I just put in a $75 put on AAPL for $3.50, looking for $4 to get out on a technical pullback only.

BZH – $70 put for $1.65 may have been a waste. This is one great company, I can’t believe I bet against it!

ECA – $45 put for $1.05. I am being way greedy on this one as it is almost a double. It will serve me right if I get burned. I have a sell in for $2.20 near the 200 dma.

GENZ – Jan ’07 $65 for $15. I wish I had sold the Jan $75s but I waited too long and now I think I’ll wait it out.

GG – Jan $20 calls for $1.16. Looking for $1.50

TGT – 12/16 TOTD is now up 35%. With a $4.50 base I will certainly get out at no less than $5.50.

WFMI – Jan ’07 $160 put for $23.89. Waiting to sell the Jan $145 puts for $4 (looks good). This is, by the way, greedy as I should be thrilled to sell the $145s for $2.50 and a 10% return!

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AMZN is selling 45 items a second but the stock can’t get any respect. I will be looking to pick this up if it holds $48 and the market turns up. Expect Amazon to post $8.5Bn in sales (up 18%) but just $550M in profits (-7%). I don’t think I want to touch them until after earnings or until they test their 200 dma around $42. The 50 dma of $46 looks like a virtual certainty for them.

Do keep in mind that, even with those numbers, AMZN still has double the sales and 4x the profits of WFMI yet WFMI is valued at double Amazon’s p/e!

LNUX, which we talked about last Thurs, went up 3% on the $9.5M sale of a minor asset they had. While investors like this move as it means capital and no dilution, I am not happy as I would have rather seen them raise rates to get the cash they need.

I was in and out of short plays on SU and SUN today, they were too risky to recommend but they went great for me! SU especially has some great shorting potential but oil proved very resilient today so I’m back to waiting for a real downturn before recommending shorts.

CHK may fall down to its 200 dma of $27 if it can squeeze past the 50 dma at $30.50 – right where it is now. Shorting oil is the dumbest play in the market but the $30 puts for $1 may prove to be a bargain. See the Valero rule and live by it if you are trading any oil!!!

SPWR is up 7% today and CY is off 1%. There is no logic there at all to this as CY owns 52M shares of Sunpower so they “made” $100M today – that’s more money than they have made since the year 2000 total! Cypress is a $1.9Bn company that owns $1.5Bn worth of stock in another company and I just can’t believe that doesn’t count for something but the shares keep going down, now selling at just $14 and right on the 200 dma. If it holds this level, then I really think CY is a buy.


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