At a ski resort in Killington Vermont there is a very popular nightspot called the Wobbly Barn. It always strikes me as amusing that so many people would pack a place that proclaims itself to be structurally unsound.
The same thing happened yesterday in the markets! Amid doom and gloom and a widening deficit and Fed uncertainty and all these various crises, investors packed back into the markets yesterday determined to party like it’s 1999.
Before I jump in and start dancing and throwing my money around, I just want to take a little bit of time to check the foundation. Let’s not overcommit, there is nothing wrong with taking profits prior to the weekend and giving ourselves a clean start next week. If this is a real rally, it will be huge and we will not miss much but until the Dow is above 11,100, the S&P at 1,300 and the Nasdaq is above 2,350, then we still are in danger of simply being back at the top of a trading range.
Europe and Asia are weak today and our markets are likely waiting on Bernanke’s testimony which begins at 10am (and will distract from the oil numbers). Even more distracting will be Google’s (and Yahoo, Cisco and MSFT) testimony before Congress today.
“Cooperation with tyranny should not be embraced for the sake of profits,” said Smith, R-N.J., chairman of the House International Relations subcommittee on global human rights. So you have an idea of which way this might be going! Expect lots of good soundbites but not much else. As you know from our homework assignment last week, it looks like Google isn’t beyond censoring our results either but at least we do have other reference sources in this country – not that we use them, but at least we have them!
“The hugely successful businesses that come before Congress … will have to account for their complicity in China’s culture of repression, and to begin to make amends,” Rep. Tom Lantos, D-Calif., said Tuesday.
I think this might be a sell on the rumor, buy on the news situation with Google and the stock may get a bounce as long as they don’t come off too slimy trying to explain how it helps Chinese citizens to view censored results. Hopefully they won’t make the mistake of letting Sergey and Eric speak directly to Congress, they just don’t have the experience to come off well.
Let’s not try to guess direction today. Watch Valero to gauge the oil sector’s direction (but beware the usual head fake in the first 30 minutes after the oil report) and watch the AMEX for the general market direction but Dow back under 11,000 will set off a losing mentality.
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SNDK and the rest of the chip sector will take a hit today on oversupply concerns. The sector has always been torn apart and I would rather look for buying opportunities once things settle down.
HAL is resting righ on its 50 dma so any move below $70 will probably carry some momentum. The $70 puts are .75 and could be a good day trade if oil continues down after inventories.
MTU may be the best bank you never heard of – the Japanese mega-corp is right at the start of a huge turnaround and is a nice way to play a little Japan in your virtual portfolio. Today is a great day to buy as the Nikkei kept the stock low despite stellar earnings. I like the Aug $12.50s for $2.30 (a .90 premium) or you can own the stock for just $13.92, collect your dividends and wait for the stock to get close to $15 so you can sell calls (.50 a month on this stock is a lot!).
ANF will pay the price for honesty. After posting 58% gains for the critical 4th quarter the CEO said that analysts shouldn’t expect that kind of growth every time and the stock plunged in the after hours. This is no overblown .com company, this is a mall staple throughout the country trading at a p/e less than 20 so let’s wait for it to come down, maybe to $62 and then jump in.
I’m getting comfortable with banks at this point and I really like CBH for a nice move up. This is a very fast growing regional bank that has traded down on Fed uncertainty. I’m hoping the stock will continue down to the 200 dma of $31.50 so I am going to offer $3 for the June $30s and hope to pick them up on a dip.
AMAT has earnings today but outlook will be far more important. Expectations are low and the stock is well below it’s 2003 high of $25 so I’m going to take a chance on the March $20s for $1. You can cover with the Feb $20 puts for .35, I might take 50% of my call position this way if I can buy them for .30 or less.
The 5% rule will not begin to cover the disaster of Outback Steakhouse’s (OSI) earnings and guidance. This stock may head back to its October low of $35! Look for news this bad to damage the whole sector.
I think ECA is going to give a bad report for the quarter as their press release touted the 2005 totals without breaking down quarters – a bad sign. CHK still has further to fall though, especially after yesterday’s run up.
Keep a hit list of oil puts that are cheaper than yesterday (all the Febs have lost a lot of time value) and hope for a build in crude of over 1M barrels, a build in gasoline of over 1.5M and a small (********** Trade of the Day – BIIB **********
BIIB has earnings this evening as well and is sitting right around $45 so I really like the spread of the APR $45 calls for $3 and the Feb $45 puts for $1. If they miss, it will be a disaster but they still might recover by April. If they hit, they are still trading $35 below where they were most of last year.
