Testy Tuesday

If it werent’ for oil and commodities the indexes would be down pre market. The Dow is sitting on 11,200, the S&P is right on 1,300 and the Nasdaq is oddly in the best shape at 2,330 but has the least holding up the index. On the other hand earnings are coming in strong and the commodity boom could be attributed to good old fashioned strong demand so it will be interesting to see which way we go today. Asia and Europe are having what looks like consolidation days with mild pullbacks but again I imagine their commodity companies are booming (ie. BP now $73.31 in Europe) to offset broader market losses. Oil has moved even further up to $69.28, if it holds $69 anything but a shocking build in inventory can send it over $70 tomorrow. Once natural gas goes back over $7 it is all over for short positions (although that is probably right when it reverses!). Gold stayed above $600 all night so it’s check/raise to the Americans and with sky high everything else I know I’m moving some more money into NEM and ABX and I picked up some BVN June $30s for .95 just in case things go really crazy. Normally earnings like we got from AA would be enough to ignite the markets but materials are getting so expensive China is actually halting construction projects as costs are soaring out of control. We need to keep our eye on GE and AAPL to see if there is any hope for the markets. Also I think if MCD falls then that will be it as they have been on a market ignoring tear for the past week, presumably because Burger King’s IPO will make people rethink McDonald’s value. ====================================== Although I’m glad I moved into cash I still see a lot of nice potential plays out there if the market does indeed hold up. These are generally hit and run ideas where I would want to set very tight stops with a goal of getting 20% off the table. AA actually can go much higher than $35 – profits doubled and there is no end in sight and I will be looking for a pullback to pick up the $35s as a day trade. Piper gave GOOG a big upgrade to $600 and they expect a beat so the stock either moves up or something is deeply wrong! If Google spikes high in the morning it’s a keeper as long as it doesn’t retrace more than 50% from the spike. If it drifts higher, I will sell before the end of the day and look to rebuy on a pullback in a day or so. If it heads down, I will sell because that may have been the spike we were waiting for. RIMM will test the 50 dma of $77.40 again today – it held yesterday but not by much and below that there is nothing keeping it from $71. $75 puts are now .95 and still could do very well if you aren’t already in them. GM should get another mini rally as they sell of a portion of Isuzu for $300M which may make the $20 puts more attractive if they go below .50. We should get a MRK moving decision as to whether the company should pay punitive damages in the Vioxx case. Any additional award will be terrible for the company so I like the spread of the $35s for .35 and the $32.50 puts for .15 hoping, of course, for the upside. RAD was an excellent example of the 5% rule yesterday, it hit that mark and stayed there all day, look for another nice move today that there will actually be a chance to get in on. A nice move up from $4.22 will also reflect well on WAG where the May $45s are still .60. BA continues on a rampage so I like BEAV May $25s for $1.60, TIE May $55s for $2.30, AIR May $25s for $2.95. DD has a great biofuel program and I like them into earnings as last year was impacted by hurricanes so I like the May $45s for .30 as a reasonable risk. DNA is way down with earnings coming out today and I think they’ll beat so I’m going to take a big chance on the $85s for .85. EBAY (4/19) will have a hard time disappointing from this level so I like the May $40s for $1.10. ********** Trade of the Day – DHI ********** I don’t know why people keep betting against DHI (or any builder) but they do. Q2 net orders are up 10%, not down 20% as the stock has been played since January! This puts them firmly on the way to another record year with the stock down 20% from it’s highs. This is no news to us as we talked about this way back in November when we picked the builders to beat the naysayers and picked up a lot of nice gains: http://philstocks.blogspot.com/2005/11/dhi-horton-hears-housing-market.html Although this move may be muted we can expect to fully retrace yesterday’s sell-off and move up from there so the $35s make a good play at .55 but will probably open more like $1 but this stock should head back to $35.50 at least. The May $35s are more stable at $1.30 and make for a safer play.