Turnaround Tuesday?

If we are going to turn, it’s going to have to be led by the Nasdaq and large caps as energy continues down and other commodities remain weak – even in the face of continuing dollar weakness. While the Dow may fly the Nasdaq may have a little of trouble if the smaller companies have to drag Microsoft, Intel and Cisco kicking and screaming to higher ground. These companies need to participate for us to really get moving. The Nasdaq thankfully took a little bounce off the 200 dma on big volume yesterday while the S&P took a sharp reverse at right about the same place that the April and March rallies began and held the top of the January and February rallies: http://stockcharts.com/gallery/?spx While we could still have another down day ahead of us, I am smelling a change in the weather! It will, once again, all come down to the SOX and whether they are finally oversold or if they are determined to retest 450. http://stockcharts.com/gallery/?%24sox Asia continues to descend with a 300 point Nikkei loss and another 100 points being chopped off the Hang Seng as their currencies continue to run up against the Dollar while Europe seems to be just about bottoming. After a drop like this, consolidation is the best we can usually hope for – I can’t imagine what news it would take to stage a reversal but it is an expiration week so I stand ready for anything! Oil is rebounding in European trading after testing $69 overnight in Asia USO is now officially lower than where it opened on 4/11 but still .30 above it’s low of 5/8 and is a great example of why I never put money in ETFs! Gold may be bouncing around $680 but it has been the US markets that have been taking it down so we won’t know the bottom until we have an up day on this side of the Atlantic. We have PPI numbers today and CPI numbers tomorrow and Bernanke and Greenspan both have events scheduled which plays into the scenario I was looking for this weekend in which the Fed initiates a turnaround by assuring us there will be a pause. It will likely be Greenspan’s role to prop up the dollar as he has more freedom as an “ex Fed” and also carries more weight in the international community. Today could go either way and I am staying mainly in cash until we get a clearer signal ===================================== Bush asked for $1.9Bn and 6,000 troops to begin deploying aerial drones and detention facilities along the border with Mexico (again, what about those pesky Canadians?) as part of his Fortress America program. I hate to be paranoid but don’t all fascists begin by telling you they are building walls (Berlin, for example) and deploying troops to keep enemies out only to end up turning those guns around to keep you in? While Bush is holding out a theoretical olive branch to existing immigrants, this looks to be a similar ploy when they “improved” HSB visas and made it virtually impossible for companies to bring tech workers into the country. Keeping out less expensive foreign labor is very Republican as it places small businesses at a tremendous disadvantage as they cannot navigate the increasingly complex legal channels to get the workers they need, are being strictly fined for not following tightening regulations and cannot afford the net increase in labor cost that is inevitable as millions of inexpensive foreign workers have to be replaced by “legal” workers. Big business already gets oversight on these issues and has been doing everything by the book for many years but the fines that are being proposed represent a stealth tax that will affect you if you eat fruit or vegetables from local farms or have your house painted by small contractors or have your lawn mowed or your house cleaned or eat in restaurants… While the people in Congress may not mind paying an extra dollar per meal or an extra $20 for the above mentioned services it is a terrible and disproportionate burden that is being placed on the working poor of this country being presented under the guise of “job protection” although the net effect will be to run thousands of small businesses into the ground, leaving only minimum wage positions at Wal-Mart for the the masses. ===================================== Again I am just looking here, not buying much at all. I will revisit my oil puts if we break below $69 but I am also ready to take the other side of that trade on many oversold oil plays (the same ones we made lots of money on the put side with). We are 250 Dow points down in 3 days and it took 6 days of climbing to get there from the last time we were at 11,400 so there is little danger of missing anything by being cautious. HPQ, AMAT, HD and WMT announce today and how they are treated will set the tone for the market. EBAY won a key point in their patent dispute in the Supreme Court yesterday and I was very surprised at the lack of interest in the stock but I suppose it needs to fully resolve the matter to assure investors. On the possibility that a settlement is at hand, I like the Jun $32.50s if they come down to .75. http://online.wsj.com/article/SB114770193285852934.html?mod=yahoo_hs&ru=yahoo Small pharma LGND had great earnings and look on track to hit numbers for this year which should earn them .60 a share so I like the stock at $11.15. IAG had a 60% earnings beat on Friday, turning in a performance of 160% over last year and the stock is off 16% since then, resting on its 50 dma. If gold turns today I really like the stock at $9.16 and selling the Dec $7.50 for $3.50 for an immediate return of $1.84 on what is effectively a $5.66 investment. WHIT beat estimates by 80% which will drive the forward p/e below 5 but they are in the wrong sector this week and were pushed down to close negative from a strong open. This little explorer is really on the ball and has room to grow even if oil goes back to $40 so I’m calling a near bottom and starting a very long position at $7.50 but maybe wait until oil does firm up a bit to go all in. Here’s a chance to get in early on an IPO on a small oil and gas producer: CXP will roll out soon in a bad environment and give you a rare opportunity to get in without a huge premium. Their numbers are very impressive, bringing 10% more to the bottom line per barrel than XOM! http://www.sec.gov/Archives/edgar/data/732834/000119312506080342/ds1a.htm#toc61416_21 Daniel asked about PEIX in comments and I really think the Gates ownership buzz has caused this stock to run wild for no reason (let’s not forget Gates also owns MSFT which hasn’t done so hot this decade). This is a pure ethanol play and we are just about at the point in the cycle where we can expect the naysayers to come out anyway. While there is a lot of potential, there is also a FORWARD p/e of 200 (if they hit ambitious numbers) and a price/book of 38 vs. say FCEL at 3 or SPWR at 7 or ADM at 3. The stock is up 600% since Jan ’05 but the options are out of control so I like shorting the stock at $37.88 and selling the Jun $35 puts for $3 which gives you good upside protection and a potential 19% profit. ===================================== Another one brought to my attention by Bryan is ESCL which plummeted due to an investigation (including raids on offices) conducted on them by Spanish authorities over some stamp scandal dropping the stock from $32 to $4 in just 3 days. 8 people were arrested and there is shareholder litigation brewing (of course). “The prosecutor’s office also said it plans to make “several arrests” as part of a lawsuit against the companies on charges ranging from tax evasion and money laundering to criminal insolvency and falsification of documents.” Not what I would usually call a buying opportunity! Barron’s broke this story last week and exposed the ponzi scheme by rival stamp peddler Afinsa, a co-owner of Escala (it would be so cool to have a research team that digs up those connections!). Escala does not seem to be at fault here and has appointed a new CFO but losing their partner Afinsa, who accounted for about half of their profits will hurt a lot but not enough to justify a p/e of 6 which it is currently trading at. The stock doubled yesterday but I don’t like it as at any moment more doors could be kicked in but I think the winning play here is Sotheby’s (BID) who should net a lot of business as the well-heeled society types who buy and sell collectables avoid any association with scandal. They are comming off a pullback from what I thought were pretty good earnings and may still test the 50 dma at $28.50 but I’m going to begin a small play on the Oct $30s at $2.90 but hoping to pick up the bulk at a lower price. ===================================== XMSR finally got an upgrade with MS stepping up to the plate and targeting $31 and I’ve been waiting a week for them to turn so I really like the Jan $20s for $1.70 and, if XM really takes off today, I will also like SIRI to play catch-up with the Jan ’08 $5s for $1.05 being a lot more relaxing than owning the actual stock. APPL will unveil a smokin’ powerbook today featuring Intel processors and anyone who doesn’t think that Apple’s market share being added to INTC doesn’t matter will be on the very wrong side of a trade this quarter! I’m not commiting to Apple as it keeps breaking my hears and it is just not oversold enough for me to jump in yet but today should be a good day. Something is up with BIIB and ELN so we can assume a Tysabri announcement is pending. We are sitting on the speculative ELN Jun $17.50s which we bought for .15 (now .95) back on 5/5 but unfortunately I got stopped out of my May $15s at .25 (I know, I could cry). I will be half out on any twitch down (option -.10) on ELN but will probably let the rest ride. BIIB is a much slower mover either way and Tysabri is only a piece of their pie (as opposed to pretty much all of Elan’s) but I think they weathered the health sector sell-off very well and I like the Jul $50s for $1.50 but will exit if the stock drops back below the 50 dma at $46.25. ===================================== WWWD is not a web address, it’s short for What Would Warren Do? Berkshire Hathaway disclosed that it has doubled its stake in COP to 17.9M shares and picked up new positions in GE (7.8M) and UPS (1.4M). While these are not earth shaking numbers we do know that Mr. Buffet is a long-term investor and his leadership often gets funds piling in behind him. As any reader of mine knows, GE has a great macro story and I am a very happy leap holder of that one. UPS is a play on the global economy and Berkshire’s call makes me think the current dip is looking more like a consolidation for the next move up. COP scares me as I see it as an endorsement of high oil prices but I suppose not so high as to derail the rest of the economy. Berkshire also added 7% to its substantial holdings in superbank WFC but sold shares in HRB (who didn’t), HD (interesting), IRM (perfect timing), LXK (oops) and SEE (good call!). Based on this I will be taking up the GE Jun $35s for .45 as I need little reason to make that bet and the UPS Jun $85s for .25. I’m not touching COP yet but I will be very interested once oil hits bottom (hopefully not until $65). WFC is overbought and I will wait for a dip but I’m very sorry I didn’t pick them up at the same time we bought C last month (I picked one rather than spread the play). If Buffet thought LXK was overbought in the mid $40s last quarter then I can’t imagine what he would think at $52 and I am concerned about those $399 Dell color lasers anyway so let’s go with the Jun $50 puts at .90 but getting out if they drop to .70 for sure! TIE did not drop from $95 to $36 this week, it just split from $72 but it is still down 25% from its high and I will Buy Buy Buy as soon as BA gives us a good sign. Hopefully it will come down a little more but at $32 I will have to initiate a position regardless.