TGIF – EOQ Edition

Bye bye Q1 – we will not miss you!

At least I hope we don’t, it would be a shame if we have to look back on this Q as "the good old days" but I am now haunted by the last picture on yesterday’s post.

It’s all about the crops report today and anytime I have an excuse to post my all-time favorite video link I sure will.  This time it’s not FCOJ that’s got everybody’s attention but CORN, which we talked about on Tuesday, when George Monbiot pointed out: ""biofuels would set up a competition for food between cars and people. The people would necessarily lose: those who can afford to drive are, by definition, richer than those who are in danger of starvation."

We already know that North Koreans are starving and you may think it can never happen here but, interestingly, under the current administration, our legally mandated 3-year supply of "reserved foodstuffs" has dropped to just 15.7 pounds per person, down from an already paltry 77 pounds in 2003 when the government did what it always does when we reach economic crisis levels – they stop measuring!  So we have no idea how close to starvation we are in this country but I know I’ll be visiting Costco this weekend and picking up some soup…

Spending and income were up and inflation was down a bit, so everything is coming up roses this morning (or, more accurately, coming up corn).  Corn planting was higher than expected at the expense of soybeans but, on the whole, this should give a boost to the markets.  I’m going to be taking the opportunity to follow one of my main rules of investing – "When in doubt, sell half" to lighten up on calls so expect a lot of position paring as I am still gravely in doubt.  If I’m wrong, so what?  We’ll have cash to buy things next week.

We’re going to also be having a little biotech party today as our CEGE Jan $5 leaps (.45) should get a boost.  This was a peripheral play for those of us who couldn’t get in on DNDN where I called for this complicated spread: "Don’t forget it’s prom day for DNDN. You can buy the stock for $5.22, sell the $5 calls for $1.35 and the $5 puts for $1.55 for a potential gain of $2.68. I think they’ll get the approval and, even if they don’t, the stock is not likely to go to 0 right away but the calls will so you can buy them out and the $5 puts on the news maybe even and take a $2 hit on the stock – it’s not a worst case but it’s the most likely worst case." 

All members need to thank Optrader, who called this on 3/1: "You guys should take a look at DNDN. Announced panel review this morning for Provenge. Stock is down 9% (who knows why, should be good news), but the Apr $5 calls are up 100% !" and especially Greedpeace, who’s been on top of this one all week and got a lot of people on board and made what may be the play of the year so far with this call: "apr 5.00 call 1.15, apr 2.5 put .20. dndn market cap 360m, drug said to be worth 1.1 billion annually if approved."  Very good job guys!

It was also Greedpeace who came up with the very brilliant idea of playing CEGE and ONXX as peripheral plays – this is exactly the kind of stuff I love about our member community – great stuff!

Asia closed their quarter out flat with only Hong Kong actually going red, but just by 20 (0.1%).  "China’s market is expensive, but there is nothing to stop it from getting more expensive," said Pauline Dan, fund manager with Manulife Asset Management in Hong Kong. She added there were few catalysts to drive new buying in Hong Kong as traders looked ahead to earnings results from blue-chip shares such as Industrial & Commercial Bank of China on Tuesday.

Holy cow – Earnings Season already!?!

Europe is having a mixed morning as Britain said "It was giving "serious consideration" to a letter from Iran that appeared to offer hope Friday for a breakthrough in the standoff over freeing 15 British navy personnel and ending the crisis over their capture."  See, I told you we solved this on Wednesday!

The letter stopped short of asking for a formal apology but instead asked for Britain to acknowledge its sailors had trespassed into Iranian waters and come to an agreement that it would not happen again.

As I said, we will be taking a neutral stance on oil into the weekend but  TSO is still my favorite put and we may shift from the $95 puts to the $100 puts today if they continue to run it higher as the end to this conflict could hit the oil patch the way a subpoena hits BZH.

Speaking of subpoenas, DELL says they "have "identified a number of accounting errors, evidence of misconduct and deficiencies in the financial control environment."  Oops…  Actually I’m hoping for a nice, big drop here so we can scoop up more Dell calls, this is old news and the SEC is already investigating them, all that remains is for the amount of the adjustment to be known, hard to imagine it having a major impact on Dell’s $4Bn in earnings.

We’re watching the same old levels as yesterday and keep in mind that this is the EOQ so we really don’t care what they do today so it’s a good day to start drinking early:

With window dressing in effect, anything down is a big, big danger sign.  We were in and out of mattress plays yesterday as we hit all the same stops as Wednesday so, just in case third time’s a charm, here is the set-up we hit when I called the market down at 11:

Critical failure on SOX, reinitiating mattress plays from yesterday! Same stops!

• DIA Apr $123 puts (DIAPS) at $1.25 stop at at $1.60 
• QQQQ Apr $44 puts (QQQPR) DD at .90, .10 trailing stop.
• IWM Apr $79 puts (IOWPA) $1.30 stop at $1.55 (.10 trail)
• SPY Apr $141 puts (SFBPK) at $1.25 out at $1.75 (same as yesterday, these had the best leverage) 

We’re still keying off S&P 1,425 but if we get 3 red canaries we need to start working our way back into a few of these and there is NO WAY I’m going into this weekend unprotected.

Will oil hold $66?  No.  Who in their right mind is going to risk a resolution to the Silver Anniversary Hostage Crisis by spending $66 a barrel for the second most abundant liquid on earth?  Well, there is T. Boone but he never bought those December 2012 barrels when I told him to scoop them up at $60 so he’s all talk and now action (but at 80+, who can blame him?).

Like I said last night though, we’re going to go with the flow here and I’ll be buying more calls and praying for WWIII along with the other oil bulls if they can maintain this level of market terror into next week (well, not really – I sold my HAL calls early this week because it made me feel dirty just to hold them…).

As always, let’s keep an eye on gold, still indicating that there is no crisis, despite CNBC’s (Criminal Narrators Boosting Crude) telling us that there is one before and after every commercial break (the commercials, by the way are over 50% energy companies and brokers).

Let’s be careful out there today and have an excellent weekend!

– Phil