Monday Madness

The Nikkei is down 300 pts, the Hang Seng is off 500 pts – not good! India has lost about 5% each of the past 3 days as fears of global rate hikes and inflation scare worldwide investors. European markets are off about a point in early trading and the chance of our markets making an abrupt U-turn to save the world are not too high. The Dow is down 5% in 7 days and has another 300 points before it challenges the 200 dma at 10,850. It is currently more likely that Friday represented a pause before a plunge than a significant reversal. http://stockcharts.com/gallery/?djia The Nasdaq is down 10% in 10 days, a full 40 points below the 200 dma of 2,230. While we would like to think it would turn here we need to be mindful of June-Aug ’04 where the Nasdaq fell 15% over 7 weeks (week 5 being up) while this is only week 2 of a decline: http://stockcharts.com/gallery/?%24comp The S&P has lost 5% over 10 sessions and is resting right above the 200 dma of 1,260 so we can look for the S&P to provide index leadership today. Unfortunately, it is trading down 5 points in pre-market so not much help there: http://stockcharts.com/gallery/?spx At this point, with a cash position, I would rather see a big blow off decline this week so we can feel safer making buys as anything less than a recovery above the 50 dmas will be tenuous at best. With yet another weekend of relative peace under our belts (3 in a row) oil has tumbled another dollar in early trading, blowing through its 50 dma of $68.50 (which is actually it’s 200 dma of $64 when you adjust for the devalued dollar). Taking the adjustment into account, this is a major breach of the 40 wma and continued weakness will take another tol on the oil patch which will make it impossible for the broader markets to recover this week without significant Nasdaq leadership. Iran has said they intend to keep output at the current level and most oil producers will continue to pump into this glut as long as someone is willing to pay them $65 a barrel for oil. They sense the party is coming to an end and they are looking to shove as much oil as possible down our throats while there is residual bidding. Look for prices to stay around $60 for the hurricane season but, if it turns out to be mild, there could be a massive winter sell-off. http://biz.yahoo.com/ap/060522/oil_prices.html?.v=3 Gold and other metals are also falling fast, very fast when you take the dollar position into account. The adjusted price of gold has dipped below $600 ($642) in early trading which is very significant as the foriegn markets had been holding gold up last week. The adjusted 200 dma is $565 and I think we may see that before there is any hope of a turn (assuming nothing blows up). Now that all that ridiculous option pumping is out of the way we may see some very sharp corrections in oil and perhap mining stocks. ===================================== The market is looking like a major catastrophe and I’m not sure I’m comfortable with anything other than cash right now. I see a few oil plays that are not dropping as far as they should but on the whole the market is just too scary to pick. We should get at least a false rally in the next day or so but we may also see another 200 point drop at any moment so there is no such thing as a bargain right now as your risk is beyond extreme! LOW had a great earnings report so let’s see how they get treated as a market mood indicator. GE remains a great overall indicator and Apple is always good to watch for tech but Yahoo got the Barron’s blessing over the weekend and were called at least 40% undervalued so anything less than 5% today will mean that the Nasdaq is still dead, despite the SOX finally having a good day on Friday (up 3%): http://stockcharts.com/gallery/?%24sox There is nothing but good news out of MOT and if they don’t turn up there really is no hope in tech. Also keep an eye on GLW who reaffirmed great guidance on slightly lower volume. ===================================== Of course we are folloing the Valero Rule to the letter on oil trades but let’s also stay far away from puts if oil goes over $68 as it is just too volatile at these levels. APA is one to watch today as they are testing the year’s low at $63 with a very weak chart. A bounce here means someone is buying a lot of oil companies. MUR has been surprisingly stable near the top, most likely because it was a laggard getting there as well but gravity may take its toll this week and I like the $50 puts for $1.55. OII has bucked the trend into option expiration but will go down with the oil service sector if HAL and SLB continue to weaken. The $65 puts reflect the lack of confidence at a ridiculous $1.40. XOM still has a way to go to the downside but the 200 dma should offer support at $59.60. After a bounce from there I might want the $62.5 puts for .85 or less. SU is still well above the 200 dma and the $75 puts are $2.60. PBR has had a horrendous week (we started shorting them right at the top!) and also bears watching as they also have a long way left to fall and will give a good indication of international sentiment as it is thinly traded in the US. I like the Jul $80 puts for $1.80. MRO has held up well (oddly well) last week and, if they can’t do it again, the $75 puts could be good at $2.55. ACI got a huge run-up into its split and is just above the earnings gap after a Friday test. This is one I will grab at the open with the $45 puts at $1.85. ===================================== In a perverse sort of way a Google bug could conclude that if Yahoo is 40-70% undervalued then GOOG must be as well so the $410s might not be too crazy at $3.50 but I would certainly not hold them long enough to challenge $395. Only if Yahoo breaks $31!!! MSFT unveiled a plan to give computers away in 3rd world countries in order to get people to use windows. That’s a big uh-oh to me so I am done with these guys until they actually release something. http://online.wsj.com/article/SB114826536740759259.html?mod=home_whats_news_us The risk/reward is there on the BBY $52.50 puts for $1.35 with the $50 puts trading at .70 (down 45%) and the $55 puts trading at $2.70 (up 100%) in light of GLW lower LCD forecast. FRK is resting on the 200 dma and any move down could lead to a drop. I like the $55 puts at $1.85 but will be getting out on any upward movement.