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Thursday, March 28, 2024

Timid Tuesday

It’s kind of like groundhog day today.

With the economy clearly slowing (even in China) but still strong and $75 oil fading away the market will see the PPI number and will either break out of the range we’ve been stuck in or break down for another 6 weeks of lethargic trading.

[8:30 update – Holy cow the PPI fell off a cliff! Down to 1%! Rally Time, Rally Time, Woo Woo!]

Asia had holidays today and the open markets did nothing of note. Europe is is on the move with the US futures but the oil sector is still holding things down as we await new leadership (so far no takers).

If tomorrow’s CPI is lower than the .4% expectation as well, we may finally break our ranges. Tomorrow also gives us Housing Starts which will “only” be about 1.8M, roughly 50% higher than the norm but a disappontment against last year’s 2M plus rate.

I’m out today but the key trading points are the same as they were yesterday, hopefully we can get through today without a reversal.

I am currently keeping faith that the S&P will not break down (despite the charts) and that we are setting up for a huge run in the 4th quarter but if the markets see the shadow of inflation, we certainly face 6 more weeks of sideways trading.

A Japanese tanker spilled 1.4M gallons of oil in the Indian Ocean, somehow colliding with another ship. Last year I pointed out that we hadn’t had a spill since oil had started going up in price as people were actually being more careful so I guess we can consider this a sign that oil really is on the way down!

A very minor recovery (.50 after a $2 drop) in oil was enough to kill yesterday’s rally. The oil sector was off about 2% in general but has miles more to go in a better world. Let’s see how we handle $73 today (with $73.50 still being the line in the sand) ahead of inventory but it might be a good idea to take some of the profits off the table on a strong dip.

Helping oil down today is BP finally taking my advice and rerouting the oil. It took them this long to notice that they have another pipeline, Endicott, which has (I do not make this up) 90,000 barrels a day of unused capacity right near the downed pipeline. Minor modifications will bring this line up almost as fast as the Japanese can spill it. It looks like, after all that fuss, BP will be at 75% capacity by October.

Gold needs to hold $630 but that will be entirely up to the dollar which faces critical resistance today. We had very strong demand for treasury notes which should help break the dollar up today.

I wish I was around today as it should be fun but I have meetings all day. I am quite content with the longs we have left and urge you to consider the laggards as potential buys if we can punch through our levels.

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The power of this column is now officially out of control! In yesterday’s comments I said: “What I would like is for someone to track Max Pain over time so we can get a moving average on it. Combine that with a blended average that takes into account premiums paid over time and I think we could have a newsworthy tracking indicator! ” and two MIT Professors ran out and retroactively completed and published the study for me. I just hope that wasn’t one of my 3 wishes because I really would rather have world peace… Thanks to Mark at Seeking Alpha for sending this over:
http://www.nytimes.com/2006/08/13/business/yourmoney/13stra.html?ex=1156219200&en=3486baeeeddc180a&ei=5070&emc=eta1

This is exactly the sort of thing I want to get a staff for so we can track it for readers!

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HD had good numbers but very cautious guidance, moving full year profit forecasts to the “low end” of expectations. This will still represent a better than 10% increase over last year’s earnings, which were very strong what with rebuilding New Orleans and all. This will be the one to keep an eye on to guage market sentiment as the stock is already trading at ’04 lows, even with earnings 35% better than ’04.

WMT came in right in line but also guided downward. I think that both of these companies are guiding towards a soft landing and if people buy into it, we may get a nice run after all. You have to go all the way back to 2001 to get another opportunity to by WMT at this price yet their forward p/e is still 40% higher than HD’s…

By the way, don’t read too much into historical comparisons, I just like the perspective but I’m sure some guy in November of 1929 was writing that you had to go all the way back to 1918 to get bargains like that – then the market fell another 70%…

DE reported a nice beat with earnings up 13% on 8% better revenues which I really like because it means they are watching the bottom line but guidance was very iffy.

Dell will take another hit today and we will see how low it can go but if you have a Dell, take advantage of the chance to get a new battery if you are on the recall list. SNE will also take a hit as they are paying for this recall (their batteries) and people didn’t make the connection in previous news stories. Watch the 50 dma at $43 but below that will be a big problem and the Sept $45 puts could work out well at $1.30.

OK, pop quiz hotshot: If Dell (25% share) laptops are exploding because their Sony (6%) batteries are defective, what are people going to be buying at CompUSA? Toshiba (14%)? No, too Japanese. IBM (10%)? No, too Lenovo. Fujitsu (2%)? Do they make laptops? Gateway? Are they still in business??? Use your phone a friend if you need to but I think we should be buying HPQ!!! They have 22% of the US laptop market already and the majority of the shelf space at retail locations. Sept $35s are .65 which I think is a really good deal and I will also be taking the Jan $37.50s for $1.40 as a preemptive roll.

SPLS will also net benefit from Dell’s woes as people who usually buy mail order will pick up a laptop there. The Dec $25s for $1.15 give us a possible earnings surprise ahead.

I still love GE so I’m taking a fun bet with the Sept $35s for .10 since I did so well yesterday with the Sept $32.50s which I still like at .90.

We are loving our long INTC position but let’s think about the value of the Sept $17.50 at .85 (a .47 premium).

When Intel and AMD go to war, the weapon of choice is AMAT who report tonight but I like the risk of the Sept $15s for .90 (a .50 premium).

Don’t get too excited! If we can’t break out of our ranges then I don’t know what can possibly do it at this point.

Have fun,

– Phil

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