Now I understand what happened to PD yesterday…
The commodity boys have put their foot down and are attempting to rally gold, oil, copper, etc. in the global markets. We should get a pop in materials at the open but let’s remember that a commodity led rally is the last thing in the world we want as it was runaway commodity prices that got us into trouble in the first place. Higher than expected CPI numbers may derail that plan though.
In last night’s comments, somebody asked if I think this is a real repeat of last spring, when we had a similar 900 point drop over 6 weeks and it was this pattern that I was warning about this April as we roared up and I kept saying we shouldn’t get too excited. I have been giving it some thought as a lot of traders are hanging their hat on that 900 number but you really have to look at the percentage, not the number. For this to repeat that pattern we have to fall another 100 points as we started with a bigger number. Also, last year’s drop ended with a single week plunge of 500 points that gave the clear bottom signal we’ve been looking for.
What brought us out of that slump was a retreat of crude prices from $58 (all time high) to $48 (2004 average) although it bounced right up again, we attributed it to hurricanes and a fear factor that we thought would go away. In fact, even though oil hit $70 in early August, Exxon did not retake its February high until September as no one believed that kind of pricing would last. Oil and copper are not really down much at all now and any rally based on materials pricing continuing to be out of control is shakey at best, despite this don’t worry, be happy article from the Journal:
http://online.wsj.com/article/SB115024896026279647.html?mod=home_whats_news_us
Asia was up slightly today but Europe is down so I don’t put a lot of faith in any bounce we get that’s less than 200 Dow points and I still maintain that any move in the Nasdaq that isn’t led by the SOX will also be meaningless. I’m sure the Nikkei watchers thought their downturn was over when they bounced off a 5% drop but let this chart be a warning to you:
http://finance.yahoo.com/q/bc?s=%5EDJI&t=3m&l=on&z=m&q=l&c=%5En225
Sorry to be a downer but I will not let you go into a “sucker’s rally” without at least letting you know you might be the sucker…
Oil needs to get back to $65 before we can even pretend it will help the consumers and even at that, how much will $2.50 a gallon really improve your life? Gold can be $10,000 an ounce and it will never impact your life the way $70 oil does or $3 (up from under $1 in ’04) copper does.
So I’m still not ready to jump in with a lot of shorts as I am really hoping we are near the bottom but if it doesn’t come here (Dow 10,700) then I think the next stop is 10,200!
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Needless to say I’m in cash today, the only trade I left open was my Apple put which I may have lucked out on as there is noise about an ITF patent infringement investigation on IPods and Creative’s Zen technology. This is part of a BS countersuit by Creative who has been accused of infringing on Apple’s patents but any legal action is stock poison so I will enjoy whatever dip we may get before turning around and taking a $57.50 call for the rest of the week. To keep things in perspective, Apple can buy a controlling interest in Creative for less than 1 week’s sales…
Oil inventories are today and I will be playing the majors up or down depending on the Valero Rule. With just 2 days to expiration the in the money options have virtually no premium so I will be looking for bargains on XOM, COP and CVX. Be careful of the 10:35 head fake!
CPST has earnings today and I like the company but we’ll see if they can figure out how to make any money on sales that are up 40%.
OXPS took a bounce off the 50 dma but could head lower on sector weakness. Watch SCHW and ET for clues as both are down more than Options Express. The Jul $25 puts are $1.25 and may make a momentum play if the markets continue down.
CME is way oversold and $450s make for a quick in and out only at $3.50 as the premium will kill you by tomorrow morning! On a trade like this I am jumping out with 20%.
ADBE has earnings tomorrow, not Friday but I will be taking at least half of my profits off the table today as no earnings have moved a stock all week.
Be careful out there,
– Phi
