Asia was up huge! The Hang Seng picked up 167 points and the Nikkei ran up 3.3% in one day for a 491 point gain. I watched this last night and I started to get excited but then I realized that this is what strong markets do, spectacular recoveries on huge volume – this is not what our market is doing. Also, if you look at what is working in Japan it is exporters and electronic firms and construction companies (remember we talked about the massive building in Asia). Effectively the Nikkei had a 1,250 point recovery (35%) in 6 sessions following a 3,500 point drop since May 9, very close to the Fibonacci expectation of 38%. The Dow has had a 470 point recovery (48%) in 6 sessions following a 972 point drop since 5/10.
We must have follow through today or we only confirming the market’s weakness. Europe is up about half a point across the board but there is a lot of grumbling that the Fed is overtightening and throwing us into a recession but the reality is they have no choice as the dollar continues to decline putting further pressure on commodity prices. Oil is up to almost $71 again not because of supply/demand or terror issues but because the dollar is falling apart again. Right now commodities are caught between a falling dollar and a long range outlook that we may be heading into an economic slowdown and rising commodity prices will damage profits and bring about that same slowdown so it’s a bad merry go round the Fed has gotten us on. I restate yesterday’s position that without the S&P making a firm cross over 1,260 this is no rally at all and I am looking more at shorting this week’s winners than jumping on the bandwagon at this point. Sorry if this is not a bright and sunny view but I’m really going to have to give this another day to see what happens.
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In general, airlines make great shorts today as British Airways lost 15% this morning on news of a scandal involving price fixing which is bound to ripple across the Atlantic. I’m going to wait a bit hoping these puts will come down in price as UBS picked today to give a general upgrade to the airline industry. CAL Aug $25 puts are $1.10 and won’t lose much value if the stock goes up a bit but will look great if something breaks over here. They claim they are not being investigated. UAUA should have a tough time getting over it’s 50 dma of $33 and the $30 puts are $1.10 for them but should obviously be dumped if they do break above the 50. One caveat on UA is that, if they can avoid big losses next quarter, their p/e is close to 2!
JNJ and BSX got terrible news on the $5Bn drug coated stent business and JNJ will be the slower mover with the Aug $60 puts currently just .50. BSX should drop too fast to short as it is a much larger part of their business.
MRK should also take a nice hit as their announcement that they will price Zocor to compete with generics only serves to remind people of how much money they will be losing as this drug goes off patent and will also serve to remind regulators of how much mark-up there is on the production side of drugs (over 90%). Very bad move by Merck if you ask me… The $35 puts are .45. I’m watching AAPL, TXN, GE, INTC for market movement and I cannot stress more what a great leading indicator GOLD has become for that sector: http://finance.yahoo.com/q/bc?t=5d&s=GOLD&l=on&z=m&q=l&c=au+abx+gg Be very careful out there but S&P 1,260 is the key!
