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Friday Morning

Asia is flat again and Europe is up but not too much so money should find its way over here today. We will have to see if this rally is oil sector driven (therefore a negative) or if it has real legs but I urge caution trading today as the markets look very weak at this height.

The oil manipulations that we discussed at length in yesterday’s comments have borne fruit and driven prices up $1 to $61.73 at Europe’s open. We will have a good test of the trader’s resolve today but their timing is good as people tend to go long on oil over the weekend as it is much more likely that something will blow up vs. someone perfecting cold fusion. In fact, if just one thing does blow up we can get right back to $65 so be prepared!

Also helping oil and driving gold up as well is news that Iraq is now under a daytime curfew (yes, we had to shut down the whole country!). This come after 100 people died just yesterday in Shiite and Sunni clashes. This situation is very, very, very bad (did I mention how very bad it was?). We flat out cannot control a civil war if it breaks out.

Iraq and Nigeria (where they are also rioting) produce 5M barrels of oil a day (and don’t forget Chavez with 2M barrels) and this is just a little too much uncertainty to absorb. I will not go into the fascinating timing that coincides with a mild inventory report (1st in a month) but let’s just say I will be more than a little suspicious if oil stocks sell off into this news.

Buy gold as a hedge. You can buy GLD, which is an index on the actual metal or one of the stocks we like which are 10%+ off their highs of late January. No shorting oil in this environment and no owning stocks either!!! You really, really need to be mainly in cash and taking profits quickly on trades until this particular situation calms down.

Get in, make money, get out. Wash, rinse, repeat… I would rather miss half the rally by not holding overnight than risk the volatility I see ahead. I think the indexes are rangebound at this point anyway, probably until good news from the Fed or March 20th when the Euro oil trading begins and we can guage the impact of that on the world economy.

Quote of the day (Leno): “We are turning our ports over to the Arabs. We can’t even turn Iraq over to the Arabs!

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RIMM will hold everyone’s attention today as they have their big hearing. I suppose it might only take just today but be prepared for this to drag on. The handicapping has switched dramatically towards a shutdown which will devastate the stock and lead to an incredible buying opportunity but let’s wait and see.

PALM is hovering near a 52 week high but still trading lower than last year even though they have been growing explosively. If RIMM does not get an injunction, the stock may drop like a rock but I like the $40s for $1.60 if RIMM is shut down. You could play the spread with the $45 calls for .45 and the $35 puts for .40 but it’s a huge gamble on a major move. 45% of Fortune 500 companies currently use Trio (not exclusively) but, very significantly, 35% are currently in testing programs!

SHLD is retooling again, dropping the year old “Sears Essentials” concept and moving back to former CEO Lacy’s plan for “Sears Grand.” As a business owner I agree with Lampert’s experimenting before committing to change, especially his willingness to try something proposed by the old guard, but I don’t think Wall Street will have patience for it. This is another stock I hate to bet against but the $115 puts for $1.50 could do well if any large investor gets the jitters this month.

SNY’s earnings sounded great to me! Again, no one gets merger accounting. Pofits were “only” $545M vs. $1.45Bn last year but there were $988M in merger costs so the company actually did 21% better than last year. I like it enough to take a chance on the $45s for .45 as a gamble that upgrades will come but wait in case the headling -68% scares the price down. If we are really lucky, the $40s will come in under to $2!

We are a little late to the party on SCHW but not too late to pick up the $17.50s for .20, just in case it continues to rock and roll.

If oil breaks $62, perhaps there will be some good short plays on the airlines, which have run up a lot lately especially AMR, CA, LUV and MEH.

********** Trades of the Day – Comeback Kids **********

Day trade only. Follow the Valero Rule to the letter. Don’t be greedy!!! If oil drops below $61, get out no matter what. Valero, oil, the OGX and XOM must all be moving up to initiate!!!

HAL – $70s for $3
TSO – $65s for $1.55
PTEN – $30s for $1 (risky)
CVX – $55 for $2.85 (low risk)
DWSN – $28.31 (no options, great company which can be held).
GW – Jun $7.50 for .55 (they’ve held this line since June so I like it long)
NOV – $65s for $2.60 (earnings today should be good – CC at 11)
MUR – $50s for .55

I like MDR for a long-term play on coal as long as Nat Gas stays above $6, which keeps coal cheaper than gas to produce electricity. The Jan ’08 $45s seem expensive at $16 until you sell the Mar $55s for .80 (5%). I’m going to ease into this one and hold off on selling, hoping for $2 on the $55s at least.


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