Just Another Manic Monday

There’s a roller coaster park in England that has one coaster called Oblivion that’s really great because it drops straight down into a pitch black tunnel and you have no idea where the bottom is… http://oneclick.coasterbuzz.com/html/pic.asp?img=/photos/altontowers/oblivion_10.jpg Welcome to today’s market. Wow, what a global disaster today is! Asian markets are off with the Hang Seng dropping 400 points on possible Yuan appreciation but European markets are taking a huge beating at the open, dropping roughly 2% across the board. This chart is not updated but there will be one long red line screaming towards the 50 dma, just about 120 points above it: http://stockcharts.com/gallery/?$HSI Japanese production dropped 5% last month while inflation moved up 2% so the BOJ doesn’t know what to do with itself at the moment, causing a lot of uncertainty on that side of the Pacific. That 5% drop is killing commodities. I also tracked down the catalyst for gold’s drop last week: http://www.thestandard.com.hk/news_detail.asp?pp_cat=22&art_id=18476&sid=7899472&con_type=1 Oil is down $1.60 in early London trading as an OPEC minister says they may be producing a glut of oil (gee where have we heard that before, oh yeah – me!). We will see if we can take out $70 today as nothing blew up over the weekend but the world’s scariest leader is making a speech tonight which may put a floor on prices. The last time we had this kind of breakdown pattern in oil was October when oil went from $70 to $60. Don’t get too excited as this drop began at $75 so we don’t have too much further to fall due to the dollar adjustment which knocks about $4.50 off the apparent price. So I will be looking as $69.50 as a key resistance point but that’s an arbitrary number as the exact calculation is really tricky. $68.50 is certainly the dollar adjusted 200 dma which hasn’t been violated since December ’04. Another factor pushing oil down is Iranian President Mahmoud Ahmadinejad saying he is willing to comply with any decision the UN takes if the resolution is based on international rules. You can take it with a grain of salt but it makes it harder for the fear mongers to make their case this week. With Japan in the toilet and the threat of World Peace breaking out, metals are off huge with copper taking a 10% hit in Asia and gold all the way down to $691 (still $40 above the correction we were looking for) and RTP, BHP and AU are down more than 5% in Europe. As I said on the weekend, the time is right for a lot of money to start flowing into the large caps as the US markets may look like a safe haven but I’m not going to go out on a limb and be the first buyer. Obviously don’t even think of being long on anything until this drop reverses a bit, bargain hunting in this environment is not smart. I am staying 90%+ in cash and will be looking for slow dropping oil companies to take fun short positions on but we need to not get carried away as this is an option expiration week and anything can happen! All of the following trades are just day trades waiting for a bottom. I want to keep as much cash as possible looking for opportunities on a reversal. I’ll be keeping my eye on BA and GE as the best indicators of a turnaround but BA should get a small bump today as they settle a Justice Dept. investigation on contracting scanals for $615M. ===================================== We can look at some oil puts but be very afraid of a turnaround as many, many people are going to lose Billions if oil falls below $70. The OIH should get support at $151 but below that is a long way to 40 wma support at $135. Most of these plays will open way down and I will be hoping for a bounce back and waiting for them to turn back down before I buy puts (following the Valero Rule!) but I may go with momentum if it looks strong enough. Don’t touch anything if oil gets over $71! The only oil I left on the table is my PBR $95 puts which I swapped into after making 150% on the $100s. Profits were up 33%, as expected but the Bolivian situation is worsening and oil is dropping and the profits were actually 10% below expectations so we will see what happens (I wish I kept the $100s though). I wish I had stuck to my XOM $62.50 puts but rather than cry over spilled milk I’ll be looking at the $60 puts – I won’t try to guess a price but it was .15 on Friday and hopefully the stock will take a while to break below the 50 dma of $62. SU is well above its 50 dma of $81 but should get there quickly. A move below that will put the $80 puts into play which were .55. BP is still way above its 50 dma of $72 and the Jun $70 puts were just .30. CVX is a nice slow mover and the $60puts are reachable at .35. MDR has a long way to go and the $65 puts were just .30. KMG is still up in the clouds and the $105 puts are not too far away at $1.20. OII was very good to us on Friday and the $65 puts are one of my favorite plays at .20. PDE was a slow mover on Friday and the $35 puts were only .65. ACI splits today and it will be interesting to see how this goes. BTUs last split was a great success. ===================================== PD will probably go down and the $90 puts at $1 are a good way to play this. RTP will probably open too low but the Jun $220 puts were $1.10 on Friday. BHP has more reasonably prced options with the $45 puts just .25. AA is a very slow mover and the $35 puts had just a .50 premium at .75. We have to look at ABX $32.50 puts for .25 if gold continues to drop even though, from a fundamental standpoint, this makes no sense. GG is also a high flying gold stock and the $35 puts are another bad day away at .40. T and VZ will be under huge pressure as they are potentially liable for $1,000 per subscriber in fines for turning phone records over to the government without proper authorization. Of the two I prefer the T Jun $25 puts for .20. LU is getting back to that level where you just have to buy it again ($2.30s) hopefully it will drop with the sector on this phone record scandal. If television companies weren’t already so beaten up this would be a great reason to short them (NWS,CBS) but it may also hold back conglomerates GE and DIS: http://online.wsj.com/article/SB114765656452252617.html?mod=home_whats_news_us TWX should take another hit on their latest disaster as Poseidon pulls in just $20M for it’s open. Any reaction here is an overreaction as it will barely affect the $3Bn bottom line. FDX is right at the 50 dma of $115 after a big move down and if it doesn’t consolidate here, we may see a big drop and the $115 puts are realtively cheap at $1.05. HPQ also has earnings tomorrow but, like I said on the weekend, this Dell fire sale really bothers me. MRK looks like it may be in trouble and the $35 puts have a very low premium at .80. http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B90B73AB2%2D88CC%2D4922%2DB5A2%2DD6C7B5BC9EB9%7D&source=blq%2Fyhoo&dist=yhoo&siteid=yhoo