Monday Morning

Asia reacted well to a bomb free close to the Olympics and easing oil tensions, their markets are up across the board. Europe seems kind of non-plussed about the whole thing so far today, probably because oil is holding $62 in early trading. Last year the Dow hit 10,984.46 in March and promptly fell off a cliff to just 10,000 in April (remember how fed up you were?) before settling down in a channel between 10,250 and 10,750 through November. Much as I don’t like the Dow, by the way, its easier to talk about because everyone can relate to the numbers as they are followed so closely and it’s not entirely disconnected from the other indices. Since mid November, 10,700 has become more of a floor but 11,100 is looking like a ceiling. We established a top in early ’04 as we did last year so, without a major breakout, we can expect traders to treat this as more of the same. A failure to break 11,200 by mid March will likely lead to a catastrophic sell-off so lets be prepared! I am not saying it will crash, I am just saying it will if we don’t get a real rally soon (subtle difference). There would be no logical reason for oil to fall below $62 today, other than general sentiment moving towards the outlook that this is all a farce engineered by the oil producing nations (we are one too) to prop up the price of oil against the largest oversupply of crude in 20 years. One could wonder how oil can go up 5% in one week but XOM goes down .13 but that kind of thinking can only confuse us so we’ll just move on for the moment. This also will go down as the biggest crisis, measured in oil prices, that had the least movement in the price of gold (+2.5%). So this week we can expect more of the same and, you’ve guessed it, I am advocating a cash position in a daytrading mode. We get new home sales today and tomorrow we have a ton of inflation gauges but the big deals are next week when Iran heads into its UN deadline so this week should be iffy at best. The best mover should be googol, coming into its (I’m predicting disastrous) analyst conference on Thursday but we should probably wait until Friday to play that one as it could go better than I think. ===================================== Auto makers will get a boost as Chinese cars fail emissions and crash testing which should delay any introductions by at least a year. The chip sector will take another hit on a Citigroup downgrade on AMAT and others. There is a ridiculous rumor that Apple will buy Disney that will hold AAPL back until it is resolved. It amazed me that things like this get any credibility… Apple has also been targeted by hackers since they switched to Intel and stories are mounting this week. Google’s growth is based on the premise that they will take a huge chunk of advertising revenue but they take that share based on the fact that they are much cheaper. Even assuming they do actually provide more bang for the buck, it has not occurred to anyone that companies will use that fact to cut advertising budgets in general! This could have huge ripple effects and Google is already showing signs of trying too hard to come up with new revenue streams so I think I’m on the right track. Don’t touch oil this week. It could go either way, let’s hope for up as it will be a great short again! There is currently a 20 day ($100Bn) build in investment dollars on the oil marked vs. last year, if this pops it could go down fast. ===================================== GE continues to make good moves and remains a long-term buy. Jan $32.50s for $3 (a $2.30 premium) provide excellent leverage. IACI should get a heck of a Barron’s bounce out of the box as the magazine featured them this weekend and called the stock 30% undervalued. Expect the 5% rule to kick in today but I would be inclined to buy $30 calls if they pullback to a reasonable $1.25 or less during the day. June $32.50s were .60 on Friday so we will have to watch those as well. One more piece of bad news will drop GME off a cliff! I like the company too much to short it but they are bound to guide down with the confirmed delay of the new PlayStation and MSFT’s continuing XBox problems. The biggest problem is that there are no major PC releases as all the game techs have spent the last 2 years working on the other platforms so it’s a triple crown disaster this year. Next year should be amazing on the other hand… CMCSA may have suffered long enough, down 1/3 from last year’s open on flat earnings, I see it as more of an investing year and I like them going forward. No one else seems to think so and you can get the Jan $27.50s for $2.60 and take the loss if it goes below $26 but I think it’s going the other way. LOW knocked the cover off the ball and may push a 5% gain at the open. This is one I could kick myself over as obviously they would do as well as HD did! Also note that HD went right back down after spiking up on thier earnings so I like the very very short day trade of the $70 puts if the stock gets near the high of $69.94 figuring we should get a pullback closer to $68. NEM also blamed rising costs for missing earnings (better than blaming poor management I guess). We have always said they were the dog of the group but unfortunately, they will drag the gold sector down with them until gold breaks $370. CHIR may break up very soon as Bird Flu Fever hits Europe. They are already shipping a vaccine and there simply isn’t enough to go around. The July $45s at $1.50 have a good chance of moving between now and then. I’m comfortable buying UNH around $58, it’s been establishing that as a floor for the past month. April $60s for $1.80 give us an extra month to wait. Get the heck out if it breaks below $57.50! We will have to wait and see what the market does today. A rally back to last week’s highs would be great but it looks far too dicey to make any big commitments so far. Good trading, – Phil