Hump Day

It is hump day in so many ways, make sure you read the column below this to see where my head is at. Look for an early bounce in some oils, especially HAL, SLB and drillers as the logic is that we may still be looking for oil next year. The key is the 10:30 inventory where they are now expecting large builds so even 1M barrel builds will not shock the markets at this point. The initial reaction to oil numbers is often wrong but keep tight stops on your profits, we can always reenter positions – if oil goes lower, there will be plenty of opportunities. The real key is whether there is a build in distillates. That is the one place a draw is expected so a build there would be devastating. Of course, we never try to outguess the Valero Rule! More bad news for housing today on even lower mortgage applications. Apple shocked the chip market with it’s new pricing on IPods. The logic is that manufacturers must be dropping their shorts for them if they can knock 30% off their prices (Apple never drops their margins). Lots of opportunities I will get to later but here is a good article on the subject: http://biz.yahoo.com/rb/060208/asia_apple.html?.v=2 Anything less than a nice move up today (.5%+) will be very bad for the markets so let’s trade carefully out there. In a market like this I am inclined to take a 20% profit off the table (setting a very tight stop as soon as I cross 20% and upping it every 5%) and have virtually no tolerance for losses. ===================================== SNDK is resting right on its 50 dma of $62.30. We called the top on this one way back on Jan 4th when the stock was at $79 so it is hard to go back short at this price but it should be watched because it is a long way back to the 200 dma of $45. PFE is really taking off this morning. With luck the March $25s will still be available for .75. CSCO is blowing through resistance and heading right back to the recent high of $19.43. Once it breaks $20.25 it has a very good shot at $22. Back on Dec 8th we took the Jan ’08 $15s for $5 and they should be slow movers if you want to jump in. The March $20s for .20 are a good gamble but they will probably open at .50 where I would rather wait to see if it breaks 20.25. MOT is a BUY BUY BUY again. Just read this article, then pick up the April $20s for $1.85 and enjoy the spring! http://online.wsj.com/article/SB113936540039867957.html?mod=yahoo_hs&ru=yahoo BCRX announced bigger losses this morning but, like Cramer wrongly says, “We don’t care where a stock has been, we care where it’s going.” I will wait to see which way the market takes this but I like buying this stock and selling the ridiculously expensive calls like the June $17.50 for $4, a $3 premium that gives you a 20% return right away and protection well below the 50 dma at $17.50. If you are more daring you can sell the Mar $20s for $1.25 instead. I hate to turn on SNE after making so much money on it last month but, come on, 50% since Nov. on one good quarter? If the Nasdaq falls and Apple doesn’t recover the Jul $45 puts look good at $2.30. DOW, DD and MON are looking good with the double whammy of lower oil and a WTO decision to allow more genetically altered crops in Europe. DD is too weak and MON too strong to buy but DOW has been butchered by energy prices (which they are successfully passing on but don’t get me started on how dumb investors can be) and the DOW Jan $40s for $4.50 are an excellent buy. As a gambler, I will also be taking a few Mar $40s for $1.85 if oil continues down today. IBM is finally announcing the stuff I’ve been reading about for weeks. I was a little early on the March $85 calls but you may still be able to pick them up at our 2/1 entry of .75 today. Because of the huge price drop, I now prefer the Mar $80 calls for $2. NCS doesn’t build homes, they are in the much better commercial construction market. They are a great company with good growth prospects and solid management. A p/e of 18 makes them quite reasonable as an investment. I like the Feb $50 puts for $1.20 (a .40 premium) for a quick trade as none of the above matters to most investors when a sector is going to hell like housing is! DW is in a similar position as an RV maker but not optionable. Generally I just can’t see shorting most home stocks now, they still make lots of money and the p/es are generally below 7. Way back on 1/9 I called the top of the market and said “Watch BZH to gauge market direction – if they drop then the sector will too.” BZH lags the sector by more than 5% but are a very dangerous stock to short (like VLO). If gold breaks below $550 then AAUK is way too high. This is a Cramer fueled stock that will drop like a rock if it breaks $35 but unfortunately is not optionable. GSK is a very slow mover for a company that knocked the cover off the ball so I like the $50 calls for a day trade but don’t pay more than a .50 premium as they expire next Friday! Get out with 20% plus. MCD is back on the march and is a good safety stock. I still have the March $32.50s from way back but I will be taking those profits and moving into the Mar $35s for $1.85. This is an important profit technique by the way. Yesterday for example, when my DIS $25 calls that I bought for .45 were at $1.35 and looking strong I purchased the same amount of Mar $27.50 calls for .35 and put a sell in at $1.75 on the $25s. This way I could cash out without worrying about missing further upside while only risking the additional profits. HYDL still has room to drop in the oil sector, the current $75 puts are very nice looking for $1. WHQ is a stay with from yesterday and it is never too late to get on the current puts for XOM or COP as they have very low premiums. UPL has a long way to go down and you can jump on the current $65 puts for $3.20. BHI will drop if HAL and SLB continue down and the Mar $75 puts are not bad at $5. In a real drop look for the drillers to start down but again FOLLOW THE VALERO RULE!!! Good trading, – Phil