Monday Morning

Both Asia and Europe are mixed but all the action is on the commodity sector, which is why China is doing better than Japan today (producer vs. consumer) and the oil doom and gloomers are having a field day with Iran’s Ayatollah threatening to cut us off if we mess with them. We are in the same place we were last Monday, needing the averages to get over their 50 dma to get going and very concerned about any further downturns. While I don’t want an energy led rally, I will take anything today to avoild a meltdown of the S&P and the Dow. I think the fundamentals are there for a very strong rally but short-term anything can happen so I will be very careful deploying my cash. Oil is well on its way to $75. $74 has been no barrier the last 3 times it headed up but $75 has both been a firm top and a market killer as well. What I would like to see this week is $77 oil and a positive market so we can shake off the index fear of high oil prices but we had nothing of the kind last summer and it may be too much to hope for. The biggest difference is that last summer oil went from $45 to $70 (up 60%) while this year we are looking at $65 to $80 (up 22% on a very devalued dollar) so I’m hoping people will rationalize this at some point but I’m not going to hold my breath. Gold will need to play catch up since it has come down so much and nothing gets gold started better than fear of inflation and fear of war all coming from one convenient location. If the dollar crosses below $1.30 to the Euro we can expect gold to shoot back over $660 to retest the satanic $666 barrier it hit a few times before. I’m not going to play gold or oil other than a day trade as a word from Iran one way or the other (and we are currently getting both ways simultaneously) could send prices flying in either direction. I am still looking for generally flat markets through the week which I consider consolidating for a break up. As long as international news doesn’t sink us the fear factor should cool off by Wednesday and we should see some buying but it will still come down to Nasdaq and SOX leadership if we are going to mount a sustained rally. ====================================== You can probably throw darts at the oil patch today and pick winners so I will be looking at whoever is relatively slow out of the gate amoung the majors and play the momentum along the Valero Rule. The oil patch is up 5% since Thursday morning and look like they are up for another 5% this week assuming oil continues on to $75! I like a few oil plays that are just under their 50 dmas because we should be able to get in before they get too expensive and the 50 should hold to the downside so we can limit our losses if they move the wrong way on us. Also keep in mind that the price of oil in no way reflects demand and this bubble could pop any moment so take all these trades with a large grain of salt! XOM is stuck below it’s 50 dma at $62 and the $62.50s usually have about a $1.20 premium. COP hits the 50 dma at $65.50 and the Jul $70s should be about $1, knowing you should get right out if it crosses back below the 50. SLB is just under it’s 50 dma at $66.33 and the $67.50s have a $2 premium last at $1.15. DO $90s are $1.50 and the drillers should trail the movement of the majors. OIS has a long way to go to catch up to the sector and the Jul $40s make a nice play at $1. TDW took a nice bounce off the 200 last week and Jul $55s should still be buyable at $1.35. ===================================== As I just wrote the weekly wrap-up I will refer you to those items that I am still tracking but again I will emphasise that I am loathe to put money into anything until we see some positive action. On the other hand I have too much faith in what I consider a very strong market base to aggressively short so the sidelines are the place for me right now. There was a big biotech conference on cancer this weekend and big Pharma showed surprising strength with solid pipeline drugs and a lot of good studies. We picked PFE Jul $25s for .35 on Fri and they should get some good movement today. If you look at MVL’s May performance it is hard to believe that they bough $100M (7%) of their own stock during the month. They have authorized another $100M for additional purchases and I will be watching for a short opportunity as they near the 50 dma at $20. One short I am following is CAT. If the Dow breaks down it will possibly push CAT over the cliff it is staring down. I am really waiting for a pullback to buy in again but, looking at the chart, I see the pullback could be severe enough to justify a short-term put. If GE and BA head down, I like the $70 puts for .50 but I am turning around and buying at the 200 dma of $64.50. http://stockcharts.com/gallery/?cat BIVN had a great phase II study on Evoltra for Leukemia but it remains to be seen if it can be commercially viable at this level. I like the stock long-term at $6. NSM is looking like it is ready to lead a SOX charge and the $25s have just a .40 premium at $1.75. SNDK is a good one to watch today as BSC gave them an upgrade. This could finally get the SOX out of the doldrums. The $60s were .40 and could make a good momentum play. TXN finally got an upgrade so our $32.50s should be golden! FCX gave a bad report today but if they hold the 200 dma at $53 then other miners are a go. AU is still my favorite gold play but the $50s are a little far away at .45. Remember to use GOLD as the canary in the gold mine stock to guage direction.