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World Record Wednesday Wrap-Up

Looks like I picked the right week to raise my targets!

As I said yesterday, it's all about Apple earnings and this, my friends, is why we don't short the Nasdaq!  The Nasdaq was the focus of our weekend discussion on the members site where I said:

  • "This is in line with what HappyTrading and I were discussing this weekend, what would constitute a Nasdaq breakout?  While you will often hear people say "Oh that’s nothing, the Nasdaq was up at 5,000 in 2000" but what they fail to remember is that it was up there for about 2 weeks (March) and quickly fell back to 4,850.  In fact the entire "spike" of the dot com bubble in tech, the entire time the Nasdaq spent above 3,000, was 13 months – fom November 1999 to November of 2000."
  • "Since we know the Nasdaq was tech heavy and companies were getting insane valuations which dragged up the index, why do we now blame Microsoft for the madness of Pets.com or Webvan?  Joe DiMaggio had a 56-game hitting streak in 1941 but he didn’t play under a black cloud for not repeating it over the next 12 years of his career.  So let’s stop treating the aberration as the norm and consider that we are, RIGHT NOW on the verge of a major breakout of all the indices, INCLUDING THE NASDAQ."

In our modern world Tech has to be the cornerstone of any real rally and just because the Nasdaq once got a little (OK, a LOT) ahead of itself, doesn't mean it's a failed index now.  100 years from now we may not be using oil but you can be damn sure we'll be using computers.  We can make diamonds now, one day gold and copper will come off a nano assembly line too.  While all of that seems very Star Trek for the average investor's time horizon it was just 1967 when Dustin Hoffman was advised that the word of the future was "Plastics" in "The Graduate." 

This film was seen by 100 Million people and any one of them who would have taken that advice and put $10,000 into "Plastics" in 1967 would be a millionaire today.  Back around Thanksgiving weekend the word on our site was "Apple" as the company came under attack on several fronts, most notably with blown up concerns over the options scandal.  I wrote several articles on how ridiculous it was but that didn't stop the stock from falling all the way to $80 where I issued a BUYBUYBUY in December.

Sometimes the market just gives you opportunities.  For every buyer there's a seller, which sounds kind of obvious but do you really think about it when you're trading?  The key to momentum trading is to put yourself in the other guys shoes, a tactic best illustrated by Eddie Murphy in trading places where he says: "OK, pork belly prices have been dropping all morning.  So everybody's waiting for them to hit rock bottom so they can buy cheap.  The people with pork belly contracts are thinking, "Hey, we're losing all our money and Christmas is coming.  I won't be able to buy my son the GI Joe with the Kung Fu grip.  And my wife won't make love to me 'cause I ain't got no money."  They're panicking, screaming, "Sell, sell."  They don't want to lose all their money.  They are panicking right now. I can feel it."

Whether it's pork bellies or plastics or Apple or (last week's pick) Google or the index picks we played on Monday, buy low and sell high isn't just about ticks on a chart, it's about market sentiment and finding the bottoms and tops by understanding the company AND the people who are buying it.  That's what we try to do here and that's why we don't just list picks and say good luck – it's a learning process for me as much as everyone else on our site!

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With that in mind I have to once again thank Greedpeace, who gave us a great intraday trade by bringing AKAM to our attention at 3:13.  We grabbed the $50 puts at 3:15 before we were quite sure why it was collapsing and sold half at $2 just 5 minutes later as we discovered they had accidentally released disappointing earnings ahead of schedule and at 3:33 we decided that $2:30 was enough fun to have for 20 minutes. 

[Chart]We can thank the Fed for telling a nice economic story in their Beige Book for goosing the markets in the afternoon.  The report was peppered with the words "mild" and "moderating" but, on the whole did not give any indications of serious economic problems.  As predicted by WHR's earnings, Durable Goods Orders jumped back up led, surprisingly, by business equipment.  Speaking of gifts, BA barely budged on their earnings and, although we already have the leaps, there's no reason we can't play the June $100s for .90 but not too many as we can hope for a pointless sell-off to give us a crack at the $95s.

We need to take a look at HPQ again and the Jun $42.50s are just $1.30 with the company reporting May 16th.  Estimates are, I think low at .65 per share, especially after looking at IBM's numbers.  We can protect those calls with DELL (5/31) June $25 puts, currently .98 but at .60 I would consider them a good spread.

The biggest news in the Beige Book to me was that Tourism is on the rise.  This coincided nicely with a turn in the XAL, who we've been watching all week so I'll be taking a look at some travel stocks over the weekend as I know there are some real laggards there.  TZOO was savaged yesterday on a flat earnings report, which unjustly harmed the whole sector.

It was up, up and away for our Super Markets today and if we can hold half of these gains through Friday we can hold a victory party over the weekend:

 

 

Day's

Must

Comfort

Break

Next

Index

Current

Move

Hold

Zone

Out

Goal

Dow 13,089 135 12,468 12,600 13,000 13,500
Transports 2,959 70 2,825 2,900 3,000 3,250
S&P 1,495 15 1,430 1,460 1,500 1,550
NYSE 9,746 98 9,218 9,465 9,600 10,000
Nasdaq 2,547 23 2,454 2,500 2,600 2,750
SOX 502 3 477 490 500 560
Russell 832 5 803 820 850 900

Ah, that's a nice chart!  It's all up to the S&P now to confirm the other levels, I'm fairly sure if they lead the Transports, Nasdaq and Russell will quickly follow into the green zone but we will get a little more aggressive on our mattress plays if they fail it!

Oil went up because there was another draw in gasoline as Criminal Narrators Boosting Crude once again ignored the entire concept of actually asking questions when reporting and were in full-blown cheerleader mode possibly saying "$4 gas" more often than "Dow 13,000" yesterday (maybe they'll make little caps for that event too!).  I'll type this slowly so the Fast Money team can keep up:

  1. Refineries make gasoline out of oil.
  2. Refinery utilization dropped from 91% to 87%
  3. The US consumes 140M barrels of oil per week. 
  4. 4% of 140Mb = 5.6Mb
  5. Crude had a build of 2Mb because no one was processing it.
  6. Gasoline had a draw of 2.8Mb because no one  was producing it.

This is not a crisis but as long as we reward commodity producers for not producing there may be no escape from this cycle.  There is no sense making a business decision to build a new refinery (or fix an existing one) if it will cause supply to go up and the prices to drop on existing refineries.  In a free market, competition would set prices and refineries would be built by others but there are regulations that prevent new refineries from being built and the few players in the US refining cartel move prices up and down at will to keep outsiders out of the game as well as to try to influence elections (notice the dive in prices into November):

eia-gaso-demand-response-to-price.JPG

The other crime against humanity being celebrated by our favorite network is the 40% "crack spread," which is a polite word for MARK UP, being charged by refiners.  Again, why on earth would they want the price of oil to fall when they are adding 40% to the price of a barrel at the pump?  40% of $65 a barrel is $26.  At $50 a barrel that knocks out over 25% of their mark-up and, if profits are less than 50%, then more than half their profits would go up in smoke!

Ah well, what can you do?  We did grab TSO $110 puts at $2 but with much less enthusiasm than usual as we had another episode of refiners gone wild after the inventory reports.  This goes back to the above conversation, the real money is there to be made by going against the herd but you have to be willing to get trampled a few times along the way!

Tonight's earnings look great but it's Apple, Apple, Apple in the morning for the Nasdaq – should be another fun day!

 


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  1. Phil,

    You will probably think this is crazy, but worth accumulating some F this morning? This stock may finally be close to coming out of its hole. . .Or it may be a good short right here, lol


  2. Boy, you wonder if the Big Boys are going to sell off today and set everybody up. . Job numbers in 4 minutes might be a good excuse to sell off.. .


  3. SNDK reports after close. Any thoughts? If AAPL gets tech going, it might be a good day trade.


  4. CY – earnings….
    http://tinyurl.com/2ynpts


  5. GMA

    Thursday post is up.

    N