OK, let’s keep our fingers crossed…
On Friday’s wrap-up I said: “We’ve been looking for a correction for a couple of weeks and, if that was all it is, we could be heading into a nice rally. This supposition is based on several factors that have held the market down this week can’t get worse: Oil heading to $70, interest heading to 5%, gold heading to $600, Iran has WMD capability, Iraq continues to be a quagmire… Also, a lot of people were taking profits off the table in a thinly traded week to pay taxes and that should be over by Monday.”
All we need now is a little push higher and we will be free to explore new territory.
It looks like we are getting it from both earnings and more nice Fed speak. At $71 I hear people are even celebrating a .35 drop in oil prices (it’s funny how quickly you get used to things).
Asian stocks are up triple digits and Europe is up about a point so all looks very well. With oil inventories out today our stocks may be tempered by a slight pullback in the oil sector (but I’m not betting against them) but Yahoo should lead a nice Nasdaq rally that will keep us going all day. Then it will be up to Apple and Intel to take us through the night.
Gold continues to fly, now at $628. MRB is now at $3.34 (up 8%) but NAK (because they don’t sell gold yet) is still at just $6.60 and should be viewed as a very long-term play.
We are seeing some amazing beats from major players like HON and UTX and IBM and JPM and TXN and PFE and ALL and JNJ and DHI and… well, you get the idea – this is a very good earnings season. If the analysts can warm up to this and the Fed gives us a clear signal of a pause and oil stays below $75 we could be heading to Dow 12,000!
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Last year COST (5/31) had a disastrous quarter as gas prices ran away from them and eroded their margins. Costco, BJs, Sam’s and Kroger all turn their inventory over daily which means they have no buffer (like a typical service station that fills up once or twice a week) as prices rise. The entire first 90 days of this year (plus this month) were probably a horror show for these guys as wholesale prices are up 30% more than retail prices for gasoline.
Costco sells more than 100M gal a month so each penny lost drives $1M away from the bottom line. My guess is they are out at least $23M for Q3, close to a 10% miss. Now I love this company and have owned it in the past but there is no way out of this trap for them as people flock to Costco to buy the cheap gas they are losing money on.
July $52.50 puts for .95 are the way to play this but the stock is in a good uptrend and may retest $57 so this position needs to be eased into. Once it breaks the 50 dma at $53.50 then it will be safe to fill the position. I’m going to start now because some bright analyst will figure this out besides me!
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PFE had slightly lower sales (-3%), which was expected, but net income rose to $4.1Bn which is up nicely from $301M last year at this time. Cost cutting was about $400M ahead of expectations giving them a 5% beat over estimates. The CEO says they will take “additional action to build shareholder value” and that’s good enough for me to pick up the Jan $27.50s for .90.
BAY got whacked when it made a big offer for SHR last month but now SHR is reporting a 21% rise in profits which is making Bayer look smarter. I like the Sep $40s for $2.55 watching the 50 dma at $40.50 to stop out.
KO – profit up 10%, stock down 20% from 2004, dividend 3%… You can take the Jan ’08 $40s for $4.90 and sell the May $42.50s for .50 for a nice 10% monthly income until you get called away on a big run although you might want to wait a bit before selling the calls as it may run over $42 next week.
I don’t know why people have lost faith in ET but the .33 the street is expecting looks pretty easy to beat but growth is slowing a bit and Schwab has been kicking ass so I’m going to just buy a few $25 puts for .15 for fun, just in case.
GENZ missed to so coupled with AMGN stay away from Biotech!
Who loves Starbucks? Hu does? Who? Hu? He went there! Who? Hu? Just buy the damn stock!!! The president of China made a big point of stopping at a Starbucks and meeting with Starbucks and saying he’d love to hang out in Starbucks all day… To Chinese people that’s like Arnold endorsing something! If you didn’t buy SBUX (5/3) the last 5 times it was picked (all winners!) them maybe the 6th time will be a charm with May $40s at .70. I don’t know what the analysts are drinking who say the company will earn .14 but it sure isn’t from Starbucks. I’m taking a 1/2 position with the intention of doubling down on a pullback.
Speaking of low expectation – INTC is expected to earn just .23, which would be their worst quarter since June of ’03 and 30% less than any quarter last year. The whole year is projected to come in almost 40% below last year as if Intel is some kind of fluke. As sick as this stock has made me for the past 6 months they still earn over $2Bn a quarter with a market cap that is lower than Google’s. That means Intel could take the $10Bn they have in the bank and commit 1/3 of their earnings to finance the purchase of Google with a 15 year mortgage. Needless to say I love the May $20s for .45. Now remember, this is my opinion vs. 47 analysts whose job it is to cover the stock…
Expectations may be too high for UPS, who are up 15% since January. They have earnings tomorrow and the $80 puts are just .15 for a fun play.
XTO reports tomorrow into huge expectations, I’m not betting against oil this month but I will be watching this one closely.
I’m taking MSFT (4/27) May $27.50s for .40 simply because something might happen – it usually doesn’t but it might!
GD beat by 15% but someone knew this yesterday and the stock is already miles up.
GOOG got a nice pop on Yahoo’s earnings, we will see where the momentum takes us. On Friday I said “We originally picked the YHOO $32.50s at $1 and they jumped 40% but crashed the rest of the week and finished at .60 – this week’s poster child for taking profits off the table. At .60 I am going to buy them back into earnings!” Congrats to all who took this one but don’t be too greedy!!!
EBAY is up tonight as well, last chance to bail on the $40s at break even .90! The May $40s are up a dime at $1.30 and should fetch $1.50 today for a 25% gain so deal or no deal? If you have the Mays and you are worried you could take 75% of them off the table and have a free ride on the rest, I’m going to take half off to significantly lower my risk.
