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Tuesday Morning

Well now we’ve done it.

The whole world is down this morning and our pre-markets don’t look so hot either. TXN’s in-line forecast is box office poison for the Nasdaq and I don’t see AAPL, GOOG, MSFT or INTC stepping up to take over leadership. Without the Nasdaq, there will be no rally.

Big test today though of 50 dmas which could be great if we hold them but devastating if we drop under. For the Nasdaq, look for 2,275, Dow 10,900, S&P 12,75. The NYSE (8,000) and AMEX (1,820) are well above their 50 dmas so the burden rests on the majors, all of whom could easily cross today but the Nasdaq will be the critical indicator for this session.

The Asian markets tried to buy oil up but the Europeans are having none of it and oil will open flattish at $62.50 but the big one to watch is natural gas which fell close to $6.50 yesterday and looks to break that barrier on any weakness. Nat Gas was around $5.50 most of last year and a return to that level leaves ECA and CHK drastically overpriced.

That Saddam knows where the oil is apparently, it turns out Kuwait may have just found the largest oil field of the decade, this will be interesting as Kuwait still owes us a biggie… If you want to see why OPEC is being so nice, check out the interest in ESLR, SPWR and other alt. energy plays – this sort of thing makes them very nervous and is also the sort of thing that becomes a fad as soon as oil goes back to $50.

http://www.washingtonpost.com/wp-dyn/content/article/2006/03/06/AR2006030600675.html

Gold seems to have stabalized at $557 but that won’t be good news for the miners as it takes new money investors too long to figure out that anything over $500 is a gold mine (so to speak). We predicted this drop based on money flowing into the new silver exchange in the weekend wrap-up but I was surprised at how big of an effect it had on gold. Everything is overdone at the beginning I guess…

Brazil is shaping up to be the next hot market in the media. The country just got an S&P upgrade to BB (very good) and the political situation looks much better but they still carry a huge debt load and I don’t trust their economy for the same reasons I don’t trust ours.

I expect another small decline in productivity as unemployment bottoms out (I hope) just under 5%. Why it surprises people that this last 5% of the people who need jobs may not be the creme of the crop is beyond me but we will see at 8:30 where anything better than -1% will be good for the market as would Unit Labor Costs rising less than 3%.

So we do have the possibility of a bounce today but look out if we don’t get it!!!

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Speaking of alternate energy, it turns out the Indian Point nuclear plant in NY is (ha ha, funny thing) leaking radiation into the local groundwater. Plant officials did’t see fit to mention it “while it was under study” SINCE AUGUST! but now that it’s been discovered by the press, they’re willing to share – isn’t that nice? Could not have come at a worse time for Bush, just as he was learning to pronounce nuclear correctly! Expect GE to pull back a little but not much as it is really nothing but makes great press.

Iran is apparently having a boom in exports! According to ABC news, the Iranian Government has been making military grade bombs and giving them to Iraqi insurgents (who says charity is dead?) so they can have a fair fight with the US military – look for this to be ignored as we play nuclear footsie with Iran this week but just so you understand why I worry sometimes:
http://abcnews.go.com/International/IraqCoverage/story?id=1692347&page=1

As expected, the M3 money supply (essentially all the US dollar measured items in the world) is climbing fast just as the government is scheduled to stop reporting it on 3/23. We talked about the implications here but the big one continues to be the one fear people had of Bernanke – his “Helicopter Ben” nickname. So called because he once said that the Fed can just print money and drop it from helicopters to thwart a financial crisis. Well, you can’t do that very easily if someone is measuring the supply of money can you? So Bush advisors’ logical solution is to just stop measuring it and everything will be fine…

http://www.capitalspectator.com/archives/2005/11/does_m3_matter.html

http://www.capitalspectator.com/archives/2006/01/m3--the_finals.html

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Let’s hold out hope for just one more day that we will bounce off our technicals. Put them on a post-it and watch for the possibility of an afternoon rally if we test, but do not break, our 50 dmas.

AMD is consolidating for another run up but it needs to either move down to the 50 dma at $37.50 or wait for the 50 dma to move up to $40 (about 10 days). All indications say they are just kicking Intel’s ass and that trend is not going to reverse itself in less than 12 monts so we just need to hope for a nice pullback. We first picked AMD way back on Jan 18th at $32.15 when I said “the most important number of the day will belong to AMD who, hopefully, can demonstrate that Intel’s suffering is due to their success and not due to overall market weakness.” (pat pat)

T is not overpaying for BLS in the long run but, in the short run, $67Bn is a lot of money. I’m hoping for a pullback on T to $23 or lower before taking a long position. Everyone looks at the acquiring company’s ability to pay but T is acquiring roughly $20Bn in cash and investments that BLS has laying around. Add that to their own holdings and AT&T “only” needs to borrow about $30Bn to finance a transaction that should throw $4Bn a year to the bottom line.

AOS may have gotten a little ahead of itself. Although a great grower, I think the residential water heating business will suffer in a housing pullback. Their forecasts are very rosey and may be called into question on the slightest hiccup. I’m going to ease very slowly into a short position here through $50 but I will be getting out if it breaks $51 on volume.

No one seems to have told BRG’s shareholders that natural gas prices are diving – expectations are very high and not likely to be sustainable. No options though so its a simple short at $60.17.

If ANF can break below its 200 dma then you can count on CHS to do the same, should have thought of this earlier but there is still time to take the $40 puts for .85 and take advantage of a reliable trading pair (obviously watch ANF for a signal to end this trade).
http://finance.yahoo.com/q/bc?s=CHS&t=6m&l=on&z=m&q=l&c=anf

CTRN is one to watch on the upside as this seems to be the next hot retailer. They are dying with the sector right now but should come back with a vengeance.

If FDX goes up, then UPS is a buy. If FDX goes down, CLDN is a sell.

I picked BOOM pre earnings at $30 and I hate repicks in the same cycle but it’s a great play at $33 if the market turns back up.

CME will not be able to withstand another Google drop. The divergence of this once reliable trading pair had gone to 30% and something’s gotta give. Anyone reading this column certainly doesn’t expect me to say Google must be heading up so we are left with the $420 puts for $5.10. You can also buy the Apr $430 puts for $18.50 and sell the current $430 puts for $8.20 and gamble on how much value you retain at the end of next week vs. your caller but I’m pretty confident in the open put using GOOG as a direction indicator.

I’m still down on RIMM at this price but the $80 puts (which I own) are very risky at $1.25. I expect the stock hit expirations at $80-75 (max pain theory) but I will not be greedy.

Last time SIRI looked this oversold was when it went from $2 to $9 mid 2004. You can buy it for $4.90 and sell Apr $5s for .25 (5%)

********** Trades of the Day – Oil Again! **********

Only if oil breaks below $62 and stays there and only for quick in and outs, keeping your finger on the sell trigger in case a Shiek makes a worrisome statement or something blows up again. The OPEC meeting is tomorrow, as is inventory so these are very big bets!

HAL has already broken the 50 dma and SLB is sitting on it but the cost of options is starting to concern me as sentiment has turned very negative. VLO and TSO can both fall off a cliff if they blow their 50 dmas which may make VLO a less reliable indicator. I’m sticking to the majors for now:

CVX $55 puts may not be so far away at .50
XOM $60 puts give you another 2 inventory reports for just .75
COP just pierced the 200 dma and is giving way $60 puts for .90
BTU is still a bit pricey, as are the $47.50 puts for $1.05
ACI is being artificially supported at $75 so I like the $75 puts even though they’re $2.
PBR has not respected the pullback so I like the $90 puts for $2.20

On all of the above follow the Valero Rule and take you losses quickly if oil breaches $60. Never be greedy… Remember, one suicide bomber can wipe these trades out before you even hear about it!


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