Let’s get ready for an exciting options expiration day today!
Oil is well above $67, casting a pall on the world markets in general. Today will be another big test for our markets which are just barely holding onto some weak technical positions.
Oil plays should be on today but follow the Valero rule to the letter or you can get very burned. Remember that there is no technical reason behind these oil prices and an actual attack on US soil would likely lessen demand, not increase it.
As much as I hate to mention it, if there is an actual attack, be prepared to short stocks that were down last time. I know it’s gruesome but it can save your virtual portfolio. Travel stocks are the easiest targets (there was a rumor that someone shorted the airlines just before the attacks) and take the longest to bounce back but also watch out for the retail sector.
Consumer confidence is at a six month high so go figure, that usually would provide a boost but the market always looks forward and that view could use some help.
=====================================
Cash cash cash today! The markets look very scary so maybe just some oil and gold trades until this puppy turns up (which I think may happen if Europe closes up). If things look sad this afternoon, I will be taking off early to ski but I’ll try to catch up on the weekend.
Laggards in the oil patch include RIG, XOM, CVX, COP, PDS, HAL and BJS. Today is not a safe day to trade anything with options coming up but if Valero is rockin’ then these are most likely to follow suit. XOM, CVX and HAL are all being held down by critical option levels and may break sharply up on Monday (assuming no change in the oil crisis).
NEM, ABX and BVN still lag the gold market. NAK is a buy as long as gold stays over $560 and MRB still looks strong.
Some homebuilders are crashing and some aren’t. There is no way I’m going to try to guess which at this point. Fundamentals seem irrelevant at this point.
- DHI looks very weak but says they are very strong in the conference call so I guess I will hope it hits the 200 dma of $35 but then I will really want to buy.
- RYL looks strained at $78 but is worth more long term.
- TOL is way undervalued but looks like it is going down to a 52 week low of $35.
- KBH seems like the safest short bet as it is way above it’s 200 dma of $70.
- BZH is my personal Moby Dick as it refuses to die – I now stay away from this.
- MTH is in freefall – this can happen to any builder!!!
I’m almost ready to get back on board FRK because all this talk about a housing slowdown still has building at historical highs and the materials have to come from somewhere.
CX will rocket up today on lifting of duties on cement imports from Mexico. This should lower costs for builders somewhat but the news was expected.
GE will be attractive on a pullback but I wouldn’t want to bet the bottom.
C was a bit disappointing, the whole banking sector may get jittery.
MS is taking over BLK, a move that should benefit both companies.
MOT had fantastic earnings but not enough to justify the hype, the stock is getting clobbered but will be a buy if it holds the 50 dma of $23.50. If not, it’s a long way down to the 200 dma at $20.50!
SBUX looks ready to pop up. With earnings on 2/1 I like the spread of the $32.50 call for .50 and the $30 put for .50 – the stock moved $2 on the last earnings and that would put you well in the money.
YHOO is going against the grain in the pre-market – that’s a sign enough for me to take the Jan $30s for $7. I will be looking to sell the Feb $35s or $37.50s but I will wait to see how the stock handles the 200 dma at $36.25.
SIRI had a strong finish yesterday and was strong overnight. Something might be up but I won’t expect much on an option day.
WYNN is looking very weak (and is a travel stock) and LVS is looking way overbought. SHFL, on the other hand, is way oversold so you can play the group both ways.
=====================================
In times of trouble there is often a “flight to quality” – essentially capital moving towards blue chip investments that are generally unaffected by the things that rock the markets. Although I am not a big fan of mutual funds, there is a stock I like in this space: Berkshire Hathaway.
Mr. Buffett has amassed a basket of stocks that have held up trough thick and thin in the markets for 20 years and, as we first pointed out on 11/20 http://philstocks.blogspot.com/2005/11/et-tu-buffet.html – now looks like one of those thin times where a little safety net would be appreciated.
We first picked the stock because it bottomed at $86,600 and it has climbed 5% since then but I think it is just getting started. If you don’t have $90,200 to invest in a share of stock, there is BRK.B which is almost the same stock but trades at the bargain price of $2,963.50. The B shares are lagging a bit behind their big brothers at the moment, making them even more attractive.
This stock will not make you rich in the short run but it is very unlikely to make you poor and there is certainly merit in that!
That brings us to today’s trade of the day, one of Mr. Buffett’s holdings:
In troubled times Americans have always been able to turn to beer as a cheap way to while away the hours and Bud is still America’s favorite cheap beer.
The stock has had problems lately but the King is not dead yet and is currently trading at its 2001 price of $42. At just 17 times earnings, the stock is well below its peers and way (20%)below it’s usual p/e of 21.5.
The company is a cash machine, flowing $2.7Bn to the bottom line and has the world’s second biggest distribution network (next to KO) so there is always room for acquisitions. With Buffett holding 15% of the company, you can be sure they won’t be wasting their cash and the company throws off a 2.5% dividend while you wait.
This stock is also a China play as BUD recently picked up 27% of Tsingtao, China’s largest brewery (and Chineese consume more beer than Americans!). Americanizing some of Tsingtao’s brands will make them more acceptable throughout Asia down the road.
While I like owning the shares straight up, I also like the Jan ’08 $45s for $3.70. If this stock hit’s $45 anytime this year, it will be a double and if the stock drops below $40 you can get out with a 25% loss.
This is a gamble with earnings coming up but the stock took such a big bounce off $39.89 after the 10/26 earnings debacle that I think the very low bar that is now set for them can easily be topped.
With earnings coming out on 2/1 and expectations very low, I think we are at a floor here, with maybe $40 being the far downside before a rebound.
=====================================
Be careful out there today and have a great weekend!
– Phil
