Finally oil looks like it’s breaking down. I learned a very hard lesson this week as I stupidly tried to get ahead of the trend and got burned. After missing the last big oil drop on 3/20 (because it was a Monday and we don’t short oil into a weekend) I wanted to make sure I was in for this one and, even with averaging in, I am already down 40-50% on my positions. I still don’t expect any real pullback in oil stocks until oil runs below the $66 mark so we are still quite a drop away from really good news.
Hopefully I will get even but, had I just followed my own rules, I would have had 100% of my oil cash ready to deploy. As it is I will be happy to get out even!
I am not smarter than Valero traders. I am not smarter than Valero traders. I am not smarter than Valero traders. I am not smarter than Valero traders. I am not smarter than Valero traders. I am not smarter than Valero traders. I am not smarter than Valero traders. I am not smarter than Valero traders. I am not smarter than Valero traders…
I am however, smart enough to know that a big drop on oil may cause a big drop in the oil sector which may cause a drop in the overall markets. If oil heads south, I would not be surprised if today or Monday we get a pullback of around 100 Dow and 25 Nasdaq points as it is way overdue.
Asia is up because their prices have now escaped the Earth’s gravity and are now being drawn towards the sun (this is my best explanation) and Europe is also making modest gains despite a week of rioting in France.
We have jobs data today and again we are looking for that Goldilocks kind of number of about 250,000 jobs created with no less than 4.7% unemployment (but no more than 4.9%) and less than .3% wage growth (yeah I know we are such cheapskate bosses).
Speaking of Goldilocks, those locks are now worth $601.50 an ounce! After consolidating below $600 for 7 sessions (after a $50 jump) gold looks poised to take a leg towards $650 which will make all our gold stocks woefully undervalued.
Keep an eye on copper to confirm direction but gold, even though it is at a 25 year high, is still very cheap adjusted for inflation. It may still pull back from here, often the US market is the first to fold on price, but once we get past $605 it should be smooth sailing.
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From the wayback machine: Way back on 2/15 I took a rare leap on MTU. At the time I said – “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!).”
Notice how well selling the March $15 call worked… With the stock at $16.15 and the Aug $12.50s at $3.90 (up 66%) it’s time to set tight stops, after all, it’s just a bank!
http://stockcharts.com/gallery/?mtu
Also from way back on 2/10: “TM has been the victim of the Nikkei meltdown this week but could skyrocketed if the exchange recovers. The Jul $100s are still nice at $9.60 and you can always sell the Mar $105s for $2.80 (but I’m confident enough to wait to sell the $110s for the same or more).”
This one is far from done!
http://stockcharts.com/gallery/?tm
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Kyle hit this right on the nose in comments yesterday but it does look like UNH (4/18) has bottomed. In the very least it looks good for a mini bounce here and the $55s are not so bad at $1.20 (a $1.70 premium) coming into earnings.
SBUX had a 10% increase in comparable store sales – that’s on $8Bn in revenue! Their increase in sales in existing stores is bigger than 95% of their sectors entire sales… Think about it, you buy Starbux and every year they add the entire revenue stream of Applebee’s! I’ve been waiting for an excuse to buy this one since it got away from us in February after I chickened out of the calls early. I like this news enough to go for the May $40s for .55.
CCJ had a construction delay that will probably impact proftis about 10% and delay 6 months worth of revenues and profits from the new mine. Between that and China claiming they are about to test a new fusion reactor (so if the world suddenly ends you’ll know why) I am liking the $40 puts at $1.60 (a .70 premium) for a quick trade.
RIMM is guiding Q1 15% lower, don’t let anyone try to sugarcoat that! This is not because of the $612M settlement (that’s already gone), it is simply because they are making less money. Management was uber bullish, albeit vague in the conference call which amazes me for a company that just spent 3 times more money on a settlement than they have earned in total for the past 9 years! They raised $1Bn in 2004 for working capital at a cost of 10% of the company and they just gave 60% of it to the guy whose idea they stole. I am going to be so fed up if this thing doesn’t drop to $77 at least!
HPQ looks about ready to break out but only with the Nasdaq. I mostly like it because the May $35s are just $1.20 while it gained $2 in 6 sessions.
If BA pulls back again I would love to pick up the May $80s for around $1.50.
Not to bore you but the house energy committee just voted 27-4 in favor of allowing RBOCs (local phone companies) to offer video services (ie. “cable”). That means fiber and fiber switches and that means AVNX’s phone will be ringing off the hook. Full vote around the end of the month but there’s nothing wrong with the stock and it jumped 8.5% today already so it needs to be grabbed before everyone knows about it for $3.29.
Yet another very positive study on Tyasabri was released in yesterday so ELN and BIIB are back in play. ELN had a nice drop from $16 so I like the $15s for .20. BIIB has been in sector hell as everyone has been bailing on Biotech this week and makes a tough call as I was hoping it would test the 200 dma at $42.50. I’m going with the $45s for $1.05 (a $1 premium) based on this news but I’m out/not in if the stock goes below $45.
I don’t know why estimates are so low (.27) for NYT’s Q1 on 4/13 but I’ve been watching them for a while and I just don’t think it will be the disaster everyone’s expecting. Apr $25s have virtually no premium at .65 but, of course, will be wiped out if they disappoint! Another longer play on this is the Oct $30s for .35.
Other than HAL, I don’t see any contractor escaping some form of cutbacks this year so RTN (4/27) seems a little pricey here. If projections disappoint they have a long way to fall so the May $45 puts are attractive at .65.
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I hesitate to even list oil plays as I got so burned last time but let’s strictly follow the Valero rule and not go too crazy while remembering how dangerous it is to short oil over the weekend. I would so rather miss another Monday drop than make another mistake by trying to get ahead of things by guessing.
It is very possible that all of these companies will spike up to shake out the shorts before heading down so better to buy a little late than a little early.
Limit losses to 20% so we have enough to try again next week if this just isn’t the right time. That being said, here are the poster boys for overpriced oil:
BP has, for reasons unknown, gone up to $72.20 in the overnights. UBS did upgrade the sector but that was as oil was breaking $68. If we break $66 going the other way I wonder if they will change their mind? I liked the $70 puts yesterday for .65 but if you can get the May $70 puts for $1.25 or less it would be a much safer play.
DO is up $15 from last options expiration with a p/e 25% ahead of its peers (NE, RIG, GSF). The $90 puts are $1.30 and could work nicely.
THE may go up a little more but then the overvalue police should step in with downgrades. The stock is up 50% since 3/20 but is far off it’s $49 high so I will bid $2 for the May $45 puts and see how it goes.
COP (4/26) has also had a heck of a run, gaining 15% in 2 weeks. The $70 puts have a very low premium (.25) at $3 while the $65 puts make a nice gamble at .50. Don’t forget that COP bought Burlington when nat gas was $15 (now
