TGIF

Yet another week we will be glad to be getting out of. At best, we are establishing a lower range of trading for the majors with a 5 day slide in the Dow that took us from the 50 dma of 11,250 to the 200 dma of 10,870. This is essentially the same channel we were in during the 2nd and 3rd quarters of 2004 and 2005, although in both of those years we broke down below the 200 dma before establishing our range. So it would be a real bull victory if we could turn up here and head back to 11,200. It will also mean that global rotation is in play and money is moving back to the US markets but let’s not get too excited yet! http://finance.yahoo.com/q/bc?t=5y&s=%5EN225&l=on&z=m&q=l&c=%5Edji The market could still go either way today but anything down is devestatingly bad! The deficit is expanding and is being paid for by increased consumer borrowing at increasing rates which is a big recipe for disaster if one is inclined to think about such things so better not to I say… Asia took a one point bounce but India came back 5% as the only index on that side of the World to make a serious effort to erase a week of losses that was worse than ours. Europe took a nice bounce as well, recovering over a point so far this morning but waiting for the all clear signal from our markets lest they get ahead of themselves. The S&P needs to hold 1,260 today while the Nasdaq needs to retake 2,200 just to stop being such a disaster and it’s unlikely to do that in one day. The SOX must turn and it would be a spectacular reversal if they do (look at the weekly chart) but hopefully TXN is strong enough to pull the whole chip sector out of its nose dive: http://stockcharts.com/gallery/?%24sox Oil is on the rebound today and the sector clearly overreacted to the small drop in oil we got this week. If crude can reestablish the 50 dma of $71 then look for a lot of oil stocks to reestablish their 50s as well. Gold has no reason to go up and will probably lay flat around $615 into the weekend but gold bugs should be glad to hold $600 against a rising dollar. Even Intel should be up today as TXN basically told the tech world to stop being silly and enjoy what looks to be a great year. Anything less than 2,175 (up 30) will be a huge disappointment from the Nasdaq today as we are down from 2,375 in 6 weeks and have a lot of ground to cover. Scary as it is I’ll be picking up some tech today but not oil as it will come out of the gate strong and holding it over the weekend is too risky so I doubt there will be any good trades there. If the Nasdaq fails to make or hold 2,175 then I am back to cash for sure. ====================================== TM announced it will be opening 1,000 dealers in China over the next 3 years and they expect to sell 10M additional cars in 2010, up from 183,000 last year. If they succeed we need to look at steel companies and parts suppliers that will benefit as long term plays but if that trend continues I really don’t see how the planet can sustain another continent full of cars (think 10M a year EACH in China, India and Pakistan by 2020) consuming fuel and killing the environment. Toyota currently has 220 dealers but will up that count by 50% as it adds 110 more this month in a single joint venture with Guangzhou Automotive. Of course they are opening a plant in Guangzhou Province to make Camrys but the Land Cruisers are very popular in China (oh no!). This is versus a US market of 17M cars a year so we are talking about a near doubling of global sales of autos in just 3 more years. The lion’s share of that market will not be going to US companies who can’t sell cars in this country and are seemingly clueless as to how to market to the emerging markets. You may think the average Chinese farmer can’t afford a car but any dad who has bought his kid a pony can tell you a car is much cheaper over time and farmers, along with the majority of the Asian population have very little debt and, just like the US in the 30s, a car will probably be the thing they finally go to the bank to borrow for. You can see why Mittal Steel wants Arcelor so badly! Mittal, by the way, finally drew a line in the sand and said they will not up their offer on Arcelor. This should propel their stock over the 200 dma at $31 and gives me faith in the stock again. All steel should be on a run today as the global economy isn’t as dire as US traders seem to think so look for X to make the Jun $65s work at $.60 and NUE to test the $50s at $1.35. All those cars will need repairs and service and insurance and, unfortunately, gas so there are lots of interesting long-term plays there but the obvious one is Toyota who, by the way, now are the biggest seller of cars in the US as well! We already have the Jul $100s and I still like them at $5 (up 20%) but owning the stock and selling options each month is a great way to play this as you will get apx 3% every 6 weeks (roughly) or 24% a year selling options regardless of what price the stock is at. Oh what a feeling that would be! I also like the Jan $100s for $8.80 and selling the Jul $105s for $2.75 but there is a risk of a continued market collapse that can drag the stock down further. Perhaps wait a week for this one to sort out before commiting to a leap. ===================================== This morning may be the right time to sell the TXN Jul $32.50s if you still have them as the implied volatility will be maxed out, I will be looking for $1.50 (up 60%) but will get out if the stock or the Nasdaq turn down. TIE has a long way to recover if BA is behaving and the Jul $40s might be in reach at $2.20 but only for a quickie as the premium is ridiculous. MOT Jul $22.50s at .40. INFY should make a bit of a comeback with India so the $65s are a momentum play at $2.90. KO got an upgrade today which should do well for our Jul $42.50s at $1.35 (up 50% already). TIF did so well I’m looking at COH Jul $30s at .75. CSCO $20s have a very low premium at .30 in a Nasdaq rally. Don’t get too excited today, we are still down over 5% so 1% gains mean nothing! Good trading, – Phil