Finally Friday

Asia is following our markets down with gusto, both the Nikkei and the Hang Seng dropped around 250 points. Europe is well down across the board and our futures do not look to bright today. I think a turnaround would be too much to ask for today so we’ll take anything that isn’t negative. There is a precedent for the Nasdaq coming back from a drop like this on Jan 23, after the last 50 point drop in the index and many bulls are pointing to it as a sign of hope. That was a Monday though, when the markets had a chance to reflect on the black Friday sell-off. With another day left in this week, the trend may not be our friend. The Jan 20 market crash came after a big run-up for the month and the false recovery that followed only led us into an ugly February. It was an options expiration day and the drop was sudden and confined to the afternoon – this is not the same at all! I do have good news though: oil has broken through its 50 dma at $68 and looks like it will test the 200 dma at $64 very soon. “Phil”, you may say, “you need better glasses – oil is clearly at $72, not $67.” Ah grasshopper, you forget (as do almost all analysts) the dollar! The dollar is down 7% since April 1st and oil is “only at $72.50” just 6.6% above $68. This better explains the phantom resistance we’ve been seeing at $72.50 – it’s not phantom resistance to people who don’t measure in dollars – it’s the 50 dma!!! You can use this 7% rule to apply to any commodity to see if it’s a real rally or just dollar deflation driving the price. Applying a 7% discount to gold knocks a hefty $50 off the price to $675 but that’s still $85 (15%) higher than April 1st. This also explains the lack of resistance at $700 as we are the only country that sees it that way. Our stocks, on the other hand are getting very, very cheap to foreign investors and we can expect a real buying spree once the dollar stabalizes (of if, the way the chart looks!). http://stockcharts.com/gallery/?$USD While I’m not sure we can break $72.50 with the weekend looming we did get a drop in global demand that should push it down a bit and we can expect some additional pullback from big oil which will, of course, kill the markets. ===================================== Cash, cash, cash and when in doubt – stick to cash until we get a nice positive signal, we are not going to miss much by waiting. Take these trade ideas with a grain of salt as it is unlikely we will see a good reason to buy any of them today. How can we not like Microsoft at $23.22? Just .08 higher than the last very nice trade we made on it this time I like the Jun $22.50s for $1 or the Jul $25s for .30. TM was a gift today if you’re not already in it from our earlier pick. The one day sale makes the Jun $120s very attractive at $2.35. UNH did, in fact, misrepresent their stock option shenanigans to the tune of $286M which will get whacked off earnings and give credence to the upcoming lawsuit so we can hope for a new bottom and buy because none of this stops the company from earning $3Bn a quarter! MT barely hit their quarter but gave great guidance so they are up nicely but I would take the money and run on yesterday’s play on the early excitement. Unless we have another Nasdaq disaster, I will be taking those CSCO Oct $20s for $1.50. SRZ made a very good case yesterday to clear up their accounting issues. I still like the Jul $40s, now .55 (down 30%). http://biz.yahoo.com/rb/060511/sunrise.html?.v=3 Buying BVN for $30.20 and selling the outrageous Jun $30s for $2.40 protects you almost all the way to the 200 dma at $27 and is a nice way to play the uncertainty in gold. AU $55s are very reasonable at $2.15 (a .30 premium). I like the PD Jan $100s for $9.90 and selling the Jun $100s for $4.25 but wait a bit as the stock should hold $95 and you may go in the money and be able to sell the $105s for the same price! ===================================== Let’s keep an eye on that magic $72.50 mark for oil but it’s hard to get the exact number against Dollar fluctuations so I’m going to be looking for $72 to be safe. Of course follow the Valero Rule to the letter and think of all these trades as very high risk – take profits quickly and don’t leave it in for the weekend in case something blows up! SU has refused to go down and the $85 puts are .60 but can be in the money if this stock twitches. GRP $55 puts have very little premium at $1.50. I have to believe this is an error but Yahoo lists the BP $75 puts at .35, this is a must own up to .70 as a 1% drop puts you in the money. OII had a huge gap up on very good earnings but the p/e of 25 has gotten ahead of the group so I like the Jun $70s for $1.50. SLB lost $1.55 yesterday with a weak finish yet the $72.50 puts are only $2.10 (a $1.10 premium). CAM looks like its weakening and the $55 puts are in the money at $1.10. CLB is coming off a Cramer pump that added $5 last week. This is hot money that may exit quickly but there are no options at $66.30. HYDL took a nasty turn yesterday and momentum may take them lower fast. The $85 puts have just a .85 premium at $2.35. PDE seems to have gotten ahead of itself and I like the $35 puts at .25. RDSA is unlikely to fall until after options expiration and I like the Jun $70s for $2.10. CVX has really held up well this week and I like the spread of the $65s for .10 and the $60 puts for .15 into the weekend. Be very careful out there today! Good trading, – Phil