Asia is not crashing today. It’s not going up either, that could be good for us as money may find its way over here.
Some of that money has found its way into gold, which finally broke $560, if we hold that line in US trading, we can look for an attack on $570 this week. If the US turns around and takes it down, then that means we bluffed them again and it’s selloff time! One indicator I look for early is if the mining stocks diverge from the POG (price of gold).
Housing is the most dangerous report today. Numbers are expected to fall at 10am but there is a thin line between a healthy pullback and a pending disaster which will plunge us into a recession. We are looking for a run rate that does not fall below 1.5M homes, down about 25% from last year.
Doubling the importance of the housing report was a fairly weak sale of notes yesterday, pushing long rates up .02% and sending a shiver through the financial markets.
The oil patch is slipping this morning on fears that a huge US build in inventory (looking for about 1M across the board) will show that the emperor has no clothes, larger builds can lead to a catastrophic sell-off that would be great for the markets once the leadership adjusts. This take down is well choreographed by Opec which hit us with postitive comments by the Saudis followed by conciliatory language in Iran. Opec is becoming nervous that oil is becoming high enough to cause the one thing they dread – demand destruction!
As far as the indexes go, it is all up to the Dow – all indexes are ready to rock and roll but the Dow must cross 10,825 on volume to confirm a rally vs. a bounce. That will be difficult today but I will be very happy with any postitive action on the Dow.
Here is the graph that gives me the most hope for US stocks: http://www.stockmarketjungle.com/notsobubbly.jpg
Jan 31st is the Fed’s next anticipated rate hike. Since I know he’s a reader I will tell Mr. Greenspan that now is the time to surprise the markets and admit that rate hikes have done enough damage to the economy. I know it is out of character but wouldn’t it be nice to shuffle off into retirement to huzzahs instead of hisses? Error on the side of exuberance, Bernanke can always slam us in March if we get too excited but another hike now will certainly make this the winter of our most dire discontent.
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GLW got slammed by earnings that met, but did not exceed expectations. The party may indeed be over as Corning made so much money selling LCD’s that many other glass manufacturers have jumped in causing the possibility of a glut to rear it’s ugly head. The company made so much money they took a $371M one-time charge to offset it so profits are actually up 250% from last year.
Contrary to what you may think, HAL (and other oil service stocks) should have a good day on a modest decline in oil because the underlying reason (declining mid-east tensions) mean more business for the company. Also, a major discovery was made in the Caspian Sea and who do you think they’re going to be calling? This is the real advantage to having a VP in your pocket.
The Valero rule is incredibly important today, do not trade oil without it! I think SU is most likely to fall on big inventories and a steep drop but XOM will like lower oil as the principle concern there is demand destruction (if Exxon is happy, Opec is happy).
TOL has been downgraded by just about everybody but RYL just reported a 50% rise in Q4 earnings (best ever) but new orders fell 4.7%. Unless prices start falling there is certainly nothing to fear from this report. Ryland is a low to mid-end builder. The company holds firm to guidance that should add another 10% or more to next year’s numbers. With earnings at double ’03s numbers and rising, this stock is a bit under where it should be ($80s) but a stronger than expected housing number will rocket this stock.
I like little CHCI which got sold off all year but is growing nicely. 2006 p/e should come in at around 4 with a PEG ratio of .2, about the lowest I’ve ever seen! This company trades like it is in bankruptcy so I will be hoping to buy in at $12 but I will also jump in at $13.50 if it is up on volume.
DD may have bottomed out yesterday. If oil drops below $65, this stock may head back to $42. This would be great for to Dow. DOW will also benefit, having bottomed out last Friday.
KMG made $2.2Bn this quarter, up from $133M last year. This is not a typo! Asset sales were a part of this and they are selling off their Gulf holdings which will steady them for next year. The company has a market cap of only $12Bn so I would expect a special dividend coming down the pike. Even without the asset sale, the company is up 400% from last year while the stock is less than doubled.
COP had a nice beat as well but I’ve been banging the drum on that one for weeks.
They are just giving AAPL $80 calls away for $1.90, the stock may not make it over $79 but you will be out with a double before then.
NFLX is growing at 60% annually despite all dire predictions. At 100% earnings growth from last year and 600% growth from 2003, the company is trading well under its 2003 high of $32. With 4M subscribers, this company is just gaining traction but it will probably open at the 50 dma of $27 (a 25% gain overnight) so I feel like I’m a little late for the party but, at 4x estimated earnings, I will be looking for an entry point.
Speaking of low expectations, Microsoft reports tomorrow and you can buy 100 $27.50 contracts for $1,500, giving you control of $270,000 worth of Microsoft for 3 weeks. The last earnings came on 10/27 and the stock rose $3 in 2 weeks following that report. That would have netted a $20,000 profit on the above trade. I’m not saying it will happen again but expectations are low enough for me to put some gambling money on Mr. Softie. If it doesn’t work this quarter, I will double down on the next one as I still see a few people using windows out there.
JNJ is erasing my tremendous put gain (but only 1/2 because I wasn’t greedy and I sold yesterday) because they took my advice and said goodbye to GDT. They also get a $700M breakup fee which will add 10% to their bottom line. I am not ready to jump in the other way just yet but I have my finger on the trigger of the $60 call position as this stock has a long way to recover if sentiment turns. BSX will continue down as they are left holding the Guidant bag – my faith in JNJ is affirmed, this was a perfect play for them!
On 1/23 at 8am I said “EK is consolidating at $24 and will be a real buy if it shows strength against the markets but I would really like to see it test below $24 before jumping back in that old favorite.” Check out this chart! http://finance.yahoo.com/q/bc?s=EK&t=5d Resistance stands at $25.25 but look out above if it breaks over that!
GM has earnings tomorrow and the $22.50 puts are an outrageous $1.45 – too rich for my blood. The stock did move $3 within 2 weeks of the 10/17 earnings but it was 30% higher then.
Our old pals at TASR are on the move again, up 13% since Monday am. I am waiting for an unpunished rise before getting in again but I could kick myself for missing this yesterday.
********** Trade of the Day – Cash **********
I still don’t trust the market enough to get back in but I will be watching the Dow closely for signs. The best sign will be oil sector going down but all indexes heading up, that will signal a successful change in leadership that can give us a very nice rally.
********** Gamble of the Day – BNI **********
BNI may be just getting started in its rise and I’m willing to take a shot with the reasonably priced $70 calls for $5.50 (a .70 premium). Setting a painful 20% stop and looking to get out with about the same.
