Today is a rare moment when I have nothing to say…
I just read an article that is so comprehensive and informative that I have nothing to add! Please take some time to read this piece by Gary Dorsch of Global Money Trends, and no just looking at the pictures!
So that’s what’s happening in the world, have a great day…
OK… I’ll say something too:
Asia is up this morning, unfortunately led by energy and mining concerns but Cannon and Toyota posted strong gains. Even South Korea was up .7% and I believe you could hear the floor traders in Asia chanting: “Itto dake iiya kotogara” (it just doesn’t matter – sort of…).
I forgot to mention yesterday the huge drop in LPL and what a great example it is of why we stop out of our winners. We exited that one on Friday with a 143% gain on the Nov $17.50s as it dropped from $17.05 to $16.81 in the morning and couldn’t get back over $17. Yesterday it opened at $16.25 as word of poor earnings may have leaked.
When we have a nice profit on a stock, we don’t need a good reason to pull profits off the table, any reason should do – even an unexplained dip! Meanwhile, earnings were not that bad and I like the Apr $17.50s for $1.30!
Europe is trading tentatively up ahead of the US open and the start of earnings season.
11,800 is firming up as a nice floor for the Dow and component AA reports at the close, setting the early tone for the end of the week.
http://stockcharts.com/gallery/?djia
IBM is launching a new service that should give them a 5% boost next year and they have a slew of new products in the pipeline. With earnings coming on the 17th and a big Dow weighting, this will be one to watch closely.
The S&P has been holding 1,350 and as long as it stays up there, we can keep drinking the Kool Aid along with the rest of the buyers but let’s keep that as a warning sign. As I said yesterday, holding 1,340 is really just fine too.
The NYSE is still our best indicator as it holds its range between 8,500 and 8,400. We seem to be in equilibrium between bulls and bears (and our virtual portfolio reflects that) and it’s a dam that’s going to break one way or the other.
http://stockcharts.com/gallery/?nyse
The Nasdaq has taken a leadership position and we need that to get the sector rotation that will have to carry us to new highs (not for the Nas, of course) and a consolidation above 2,300 would be very bullish at this point!
We got good action from the SOX and the TRANQ yesterday but both need to make a serious move up to get things moving in the right direction. SWFT issued a warning, 20% below expectations followed by CNW and CVTI all citing weak demand. Let’s hope this doesn’t matter but it kind of seems like it will…
OPEC looks like they don’t matter as they discuss a Spare Capacity Increase of 1M barrels a day. My thanks to the commenter who came up with this concept but that’s exactly what they are doing! Announcing production cuts is just another way of saying there is so much oil around that the markets will plummet without a production cutback.
This was our weekend topic so I won’t rehash it here, but we will now monitor the OPEC Spare Capacity Index closely as it is now close to 4M barrels a day, roughly where it was in 2002, when oil was $35 a barrel!
We’ll see if we get another shot at $58 this week but all we really need is for $60 to firm up as a ceiling to prepare for the next leg down. $59.76 is a key 5% level and the next minor test will come at $58.50 and a stronger test at the $57 level.
Goldman downgraded XOM to neutral! We’ll see if that is enough to get them going in the right direction. Now CVX and COP have gotten bad news from Russia as well as Gazprom has decided it doesn’t need their help to develop Russia’s Shtokman field.
Gold has to cope with the reality of a stronger dollar today and that, coupled with another huge boost in spare oil capacity gives gold bugs little ammunition to keep selling us pretty bits of metal at $590.
Both small business owners and big business CEOs are less optimistic than they were in the summer but – it just doesn’t matter! The bond market is starting to price another Fed hike in and that just doesn’t matter! We’ve had 30 out of the last 43 trading session end positive on the Dow for an 800-point gain since 8/14, including 9 of the last 11 sessions, accounting for 350 of those points – that’s what matters!
As we know from roulette, if it comes up black 9 times in a row we bet it all on black for number 10 right? Who’s with me? No – ok, so let’s be careful out there!
I don’t know if you’ll see this link but today’s WSJ poll was “How would you grade the US’s handling of the “axis of evil”? I think you know how I voted, but I was surprised to find that 1,204 (54%) Journal readers had given the administration an F and another 30% split between a C and a D. There were only 97 (4%) A votes with 12% (B). It is interesting to note that this closely follows the pattern of George Bush’s college transcripts!
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I’m watching only today other than some possible oil plays. I’d rather wait to hear a few earnings reports before getting overly excited. We have plenty of good positions open and I’m not too psyched about overloading until we get past the Fed minutes and oil inventory tomorrow.
Sprint will be giving us a buy opportunity soon as they change CEOs. It should bring the stock back down to near $17 where the Nov $17.50s should be attractive. I was sorry I missed this one and now I’m not. See – it just didn’t matter!
Warren Buffet is extolling his 100 companies’ executives to behave! It would be nice if he manages to start a trend…
No picks from me today but I still have a list:
Zman’s Energy Plays
Our resident energy expert has his own blog and we’ve been discussing several picks of late and there are a few here that we wholeheartedly agree on. If Tom thinks they’re a good idea too we will have a trifecta well worth wagering on!
SU (10/26) still has a long way to fall. With oil sand processing, their production costs are high so when oil comes down in price, it rapidly eats away at their profits. The processing of oil sands is also very energy intensive so they become a victim of their own pricing success. I have heard some figures that claim that it takes 7/10 of a barrel of crude to produce a barrel from oil sands, kind of a strange way to make money!
Money is flying out of their sector and the company has no chance of hitting last quarter’s $1.46 a share (up 28%) as revenues look to be significantly lighter than in Q1, when they missed on then record sales. Expectations are down to $1.22 a share for Q3 but, with SG&A up $360M since last November, a return to last year’s revenues may prove very painful for Suncor.
We are in the SU Nov $65 puts for $2.65 (up 33%) since 10/9
ECA is the most inflated of the gas stocks, trading at a whopping 100% over its 2004 range. Last November the stock ran up to $55 but it has since flattened out. Perhaps that is because last quarter the main product they sell (86% of sales) is now selling for 55% less than it was last year? Somehow, the 25 analysts who cover the stock have decided that EnCana will make just 10% less than last year on 10/25.
Apparently the company has hedged their production at $7.29, higher than the current rate but still well below last year. Last quarter’s $824M in profits included a $582M gain from the sale of storage assets and a $457M tax gain. Hmmm… I may be rusty at math but that doesn’t sound good…
We are in the ECA Nov $45 puts for $2.05 (up 17%) since 10/9
EOG (10/31) is another 100% gainer in the past 2 months. Wisely changing their name from Enron Oil and Gas this company drills and drills to get bigger and bigger. They have made a big play in Branett but the cost of producing there will be prohibitive with gas under $10.
Revenues already took a hit in Q2, dropping below 2005 levels and gas has only gotten cheaper. 31 analysts have already lowered estimates to $1.06 for Q3, 30% below last year but cost of revenue is up 15% from last year and SG&A is up 30% for $80M of new expenses that will be hard to trim. Additionally, last quarter had an unusually low tax expense of just 27% a feat that will be hard to match.
I like the EOG Nov $60s for $2.30 as a new play.
SLB is trading near the top of its long-term range while HAL is back just 30% over 2004 levels. They are both good companies fundamentally (although HAL is evil) and have long been a reliable trading pair. HAL, in fact has a p/e 50% lower than SLB!
That’s what’s made the last 3 months so strange, while Haliburton has lost 25% of its value since July 10th, Schlumberger has dropped just 7%. A large part of this is the assumption that HAL will no longer be awarded every service contract before SLB can even put a bid in but I think people are just a little too bullish on SLB.
We are in the SLB Nov $57.50 puts for $1.95 (up a nickel).
If oil remains under $60, these all represent good opportunities for us to enter but don’t over commit as we still have some danger of an upward correction. Hopefully, this week’s inventory will drive a stake through the heart of the energy complex but, in the “lies, damn lies, and statistics” category, all sorts of shenanigans are played with the inventory numbers.
It’s important to know that the inventory reports are done by survey – and who are we surveying? The people who sell oil! “Hello, do you have a lot of oil?” “No, it’s selling like hotcakes – better tell people to buy some quick!”
So we take the inventories with a huge grain of salt!
Ahead of inventories we may get some nice spikes in several stocks so I have some other plays that I like if the price comes down. Our get out/don’t buy level for oil is $61.69 but below that there are several companies that would still be nice to buy if we can save 15% or more on the options.
Other picks we both like:
GSF Nov $45 puts for $1.50.
DVN Nov $60 puts for $2.35.
BBG – let it complete it’s upswing.
APC Nov $40 puts for $1.20.
COG Nov $45 puts for $1.75.
Two others I like are:
CAM Nov $45 puts for $1.60.
UCO Nov $50 puts for $2.20.
