Thursday Morning

Big direction day today. Will the Dow hold 10,800? Will the Nasdaq hold 2,250? Will the S&P hold 1,265? I think yes, not only that but I think we have to look at higher targets again: Dow 10,900, Nasdaq 2,100, S&P 1,275. These are the numbers that would put us firmly back in rally mode. Hopefully we can get back to these levels next week. Asia is bouncing for the most part but not the sort of dramatic comebacks we have seen before. Europe is having a very big day with greater than 1% gains on many exchanges. While I worry about this sucking up some of our market’s money, it is also a sign of the global realignment of capital we have been hoping for as it is the European’s money that is the fulcrum of the world markets. Gold is rebounding today, regaining 50% of this week’s loss. On the whole, it looks like gold is forming a long flag up and we should take advantage of this dip to take long positions. Oil, on the other hand, is consolidating for a move down but we shouldn’t play this either way until we get a confirming move. A strong market can lift all ships, including tanker-sized oil stocks. Oil is up today on lower Mexican production forecasts – this is why I hate to hold oil puts overnight! It is way beyond suspicious that this December study was released just as oil was threatening to go back below $60 a barrel… Natural gas inventories are out at 10:30 and they expect a draw down of 88Bn. Less than 70Bn drawn will send oil prices even further down. The big story of the day is that we are selling $14B worth of 30 year notes today. Big demand at these low rates (4.7%) will be a very good sign for the markets. Expect a good sign because the 30 years haven’t been available for 5 years so there have to be at least $14Bn worth of buyers who need it for whatever reason. I would take any great exuberance coming from this sale to be fairly irrational. On a day like today though, traders like to have an excuse to buy and this will be a good one. Remember the Iran crisis? Try and find that in the news today. Like I said last week, fear only lasts so long before everyone adapts to it. ===================================== To me the big story of the day might be IMCL’s cancer progress. It’s sketchy and only a rumor but I’m hearing that some study is coming out that Erbitux has been “very effective” against cancer in the head and neck. OK, so I’m no Matt Drudge but, just in case, I feel safe enough taking this Martha Stewart scandal ravaged stock at the very low price of $36 by picking up the March $40s for .80. Be careful around $37 as the stock was viciously rejected there 3 times. Speaking of pharma, GSK looks very nice to me. They are a bird flu play as well as having a very nice pipeline and the only reason the stock is not flying is that investors are concerned that they may spend too much money on Pfizer’s consumer products division (I doubt they will). These are the guys who may have a cervical cancer vaccine if it’s approved – think that might sell a few doses? The Jan $45s are very reasonable at $7.95 (a $2 premium) if the stock kicks up you can start selling $55s once they get to $1.50 or so. You might want to wait until the stock confirms up by breaking the 50 dma of $51.20, where it was rejected yesterday but I think it will break big and I am going to take a chance. JNJ took a big turn off a very steep slide but I am leery about jumping back into this stock until the issue with deaths being caused by ADHD drugs is cleared up. JNJ is one of 4 major suppliers. 78 Million children have taken this stuff in the past 5 years (I know, sick!). Also possibly affected are SGP, NVS and LLY. NVS is the highest flyer of the group if you are inclined to bet on a drop. EDS gave a very nice report today and raised guidance. I like the Jan ’08 $30s for $2 on this stock but you can also buy the stock and sell the $25 calls for a quick 5%. BA is back on track this morning as Rolls Royce has a huge quarter as well. This confirms sector strength. It would be beyond redundant for me to recommend the March $75s again. GOOG is at $371 in pre-market, if it opens under $370 it might be heading down again. My logic remains that if the market is rallying, will I get a better risk/reward from one share of Google or 1 share of 10 other attractive stocks? I may be losing $100 selling my Google stock but I will free up $370 to buy TXN or INTC or MOT or BA or AAPL or 500 much more attractive issues… DELL is looking very nice relative to HPQ. We missed a good chance to buy in yesterday but the GOOG/DELL news should continue to move the stock forward. I like the Jan $30 for $4.50 as well as the March $32.50 for .80. If you buy the former you can sell the later for a quick 17%! How much are we liking those AAPL Jan $65s now? They are still a great buy today at about $16. This sounds like a lot until you sell the March $75s for $2.50 or more if you wait a bit. We are looking for NUE to break below $80 and X to go below $57.50 today to confirm a big downward move. As crazy as it is to short stocks with a single digit p/e, sometimes you can’t argue with momentum. For NUE I like the Mar $70 puts for $1.15 – not because I think it will go to $70! Look for a 20%+ profit and get out. RIMM should be back on the move with the company coming out and saying it really, really does have a work around solution in case they are hit with an injunction. This stock is capable of stunning moves up once it gets going. It’s too dangerous to play though as it will open up close to 5% although you could buy the stock and sell the amazingly high priced options. Yesterday’s Mar $70s were $5, even though they were $1.35 out of the money! ********** Trade of the Day – X Marks the Spot ********** With X the options are so overpriced that the best play is to take the Jan $60 puts for $9 and sell the Mar $55 puts for $3.80. This gives you upside protection almost all the way to the 52 week high of $62 and a $2 cushion before your put holder is in the money. I will be doing this but taking a chance and waiting a bit before selling the put, hoping for a bigger move down but anyone should be happy taking a quick 30% return like this!