I am very on the fence today. It is very likely that the oil sector will drag down the markets, if not I will be very pleased.
On the whole, I’m pretty sure we will take another run at resistance this week but I’m terrified at what might happen if we are rejected again (it’s kind of like getting a date for the prom!).
AT&T is buying BellSouth for $67Bn indicating this sector is a lot hotter than anyone thought and RIMM settled their lawsuit (finally) and Warren Buffett is optimistic – if this doesn’t get us over our technicals, nothing will! Remember we are looking for the following to confirm a real rally:
Dow – 11,160
Nasdaq – 2,335
S&P – 1,300
The AMEX has already broken out and will be uber bullish above 1,900 and the same can be said about the NYSE at 8,130. If these indexes fall, I will be more concerned than if the majors fail to break up but they all need to move forward this week to put us into a higher range that we need to begin to make real gains.
Asia took off nicely and Europe followed suit so you would think we would need some genuine bad news to stop the markets here. Nothing blew up over the weekend but today is the day the UN may decide to spank Iran (I doubt it) .
OPEC is meeting Wednesday but those crazy Nigerians keep attacking oil pipelines, this could be a good thing at the moment as it makes OPEC look very bad if they take the necessary step of cutting back. I think avoidance of bad PR (and a little greed) will win out over common sense and we can expect this oversupply of oil to continue into a major crash in prices.
It could be game on for all the old oil puts today, you should always have a list of your favorites ready to trigger on days when crude plunges!
Gold rebounded but now we need to see what the week brings as $570 is now ho-hum already. All commodities are looking pretty good again and we are in a low data week until Friday when unemployment comes out so, other than foreign crises, there is not too much that should disrupt our rally. If we do pull back, I will be disproportionately concerned!
I’m leaning towards cash until the markets show me something but I will feel more comfortable holding overnights if the market stays up today. You will notice I’m tracking slightly more conservative plays today, I tend to do this when I’m worried. I’d rather take a nice, semi-safe 3-4% by selling a call than risk positions that can get killed overnight!
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Someone asked about IDCC (3/9) on Friday and the stock looks great to me but I wish they had asked me a month ago when it was at $18. The stock leaped up to $26 on a deal with LG that will bring it $95M a year in additional revenues and because of that I still think it’s undervalued as projections for next year do not yet reflect those numbers. Unless the deal is exclusive or low margin, too soon to tell, this company will hit everyone’s radar this week as they announce sales that will put them close to 75% growth for 2005 with another 50%+ projected for next year. Options haven’t caught up with the new pricing so the Apr $27.50s are reasonable at $1.50 and you can insure them with the Mar $25 puts for .40 in case they blow the quarter.
The RIMM settlement will really goose the Nasdaq in the morning but without INTC, AAPL and MSFT we are not going to sustain a rally. RIMM did a great job of throwing in a profit warning late Friday which was quickly buried as profits will drop close to 20% in the current quarter (not including the settlement charges). I may be shorting this today as the irrational exuberance over the settlement will drive the price over $80. There is no way to predict the options but I will be looking at $80 puts for a day trade as it tops out.
WYNN was a great short on Friday but not if you were greedy and held it! They sold (subject to approval) Macau rights to PBL for $900M. This is not actually good news for WYNN (obviously they don’t think they will make the Billions on the rights that they have been telling people) but try explaining that to the market so we stay far away from this one until it is obscenely overbought, perhaps if it gets rejected at $70 this time! This also makes LVS go up in sympathy so I’m doubly ticked off at the timing!
LGF got a very nice surprise last night as Crash won the Oscar for best picture. This is beyond big for this independent studio and should push them back over $10 today as they were only projected to make $20M this year and they should do better than that on the re-release of this one film (plus dvd etc of an Oscar winning movie almost no one has seen yet).
FRK may be consolidating for another move up. The building supply business will be much better than expected this year with commercial business on the rise. I like the Jan $55s for $9.60 and selling the Apr $60s for $2.20 in this volatile stock.
I also like GVA in this space but only if it comes down (which I have been hoping since $40).
Both BIIB and ELN have traded down in fear of a bad decision on Tysabri this week. Not gonna happen in my opinion so I really like spreading BIIB’s Jan $45s for $6.90 AND the Apr $40 puts for .75 (just in case I’m wrong). ELN’s options are too far out of control to play and, without Tysabri, there will be no recovery for Elan at all.
It’s very complicated but China, with 400M+ mobile phone users, is moving towards a new standard (TD-SCDMA) in order to curtail international licensing fees which will hurt international players like NOK, MOT, LU and ERICY as well as current China favorites CHL and CHU. Who benefits? CHA, the AT&T of China, who have been pushing the standard (I wonder what lobbying is like in China?). This is a heavily ingrained Chinese company with $30Bn in sales and growing (1.4M new subscribers in January) and a lock on wired communications that has been treated as an also ran to more nimble competitors. Patience is a virtue here so I like either holding the stock at $36.50 (I know, shocking!) or taking the Jun $40s for $1. $36.50 is the 200 dma so it will be quick and easy to see if I’m wrong and resistance is at the 50 dma of $37.75 so one should enter carefully!
CRDN’s 2/28 earnings were beyond blow out, so much so that they retired some debt and took a 10% hit so they wouldn’t be embarrassed by how much they beat estimates (was 8%, would have been 20%). Analysts were expecting them to more than double last year’s .24 but .66 (putting back the one-time charge) is close to a triple! The very conservative management had to raise guidance by 30% for 2006 (a little less than double 2005). After missing them on Tuesday I was hoping for a pullback but no such luck so I’m going to take a small position on stock at $62.51 and sell the Apr $65s for $4 or better (7%) unless it pulls back under $62 in which case I sell the Apr $60s for $5 to protect myself.
UNT is a great buy if it crosses the 50 dma at $56 today and stays there. The company earns $5 for every $55 share (as much as Google does for $380 shares) and is growing at a 130% rate that has been accelerating. I would almost say the heck with Valero on this one as the company is building its reserves at an amazing clip but some reality will set in if oil collapses (gas already has!). Still, in an oil rally, this is my top pick with the Sept $55s at $6.80 which seems like too much until you sell the Apr $60s for $1.50 (22% first month).
On the flip side of oil, BTU seems most ripe for a fall with the risky Apr $50 puts at $2.65 and CHK with $32.50 puts at $1.30 carrying just a .30 premium.
OII also seems a little stretched but no one thinks they will break below the 50 dma at $55 so the Apr $55 puts are just $2.10 but let’s remember with all oil puts that a crisis in Iran can kill your trade in seconds!!!
SU is pushing its upper limits again, another rejection from the low $80s will really hurt the stock but this is almost a pure play on oil going down to at least $62. I like the $75 puts for $1 with a very itch sell trigger finger following the Valero Rule.
Watch VLO’s trading partner TSO today as well, the $65 puts have a low premium at $2.85 (.20).
GE bought out IVIL for $600M, no premium at all, and below this and last year’s highs. This would indicate to me that these community sites are overpriced but this is still a good move by GE as IVillage is huge with women.
T spends more money than BLS so CSCO is very happy! At this stage I like the Jul $22.50s for .70 but I expect a dip at some point so I’m easing in very slowly.
If things sound bad in Iran you can console yourself with BVN Jun $30s for $1.40 or NEM Apr $55s for $1.90. If gold breaks and stays over $570, both of these stocks are way oversold!
If you think it’s hard to sleep with open positions now, wait until the NYSE makes it’s next move! They are going to apply for an 8:30 open initially but I think we are just steps away from 24 hour trading. The question is whether this is a job opportunity for floor traders or whether they will be phased out completely in favor of electronic exchanges. Let the lobbying begin!
Watch those bank stocks and credit card specialists like COF as the Government slowly rounds on them into the election. With the average American owing $3,560 in debt and fees and interest out of control, you will hear a lot of regulatory sabre rattling by politicians who want to scare up lobbying dollars from this generous industry. With 22 buys and no sells, I like the very contrarian play of the Jun $85 puts for $2, stopping out if the stock crosses $90.
