Another tricky day!
Asia is way up with the Nikkei jumping 267 points off the 200 dma/psychological 16,000 mark. Japan’s economy grew at 2%, vs. the 1.5% expected as the US consumers made up for lackluster consumer spending at home. This could be a best of both worlds for us as their economy is picking up and they still have no reason to raise rates.
Unfortunately, this gives oil an excuse to go up a bit as they are the second biggest economy in the world (1/3 the US) although they do conserve better than we do!
China, on the other hand, has a problem. Their money supply is up 17% for the year, mostly because we keep giving it to them! This is very inflationary and that’s not good when you have 900M farmers in your country…
As we are making nice with Vietnam now, we are removing them from the list of countries that violate religious freedom just day’s ahead of Bush’s visit. Isn’t that special?
Europe opened well but is now (6am) thinking better of it, possibly as oil spiked up on the Japan GDP. I think this is a wrong take because neither the US or Japan base as much of their economic growth on manufacturing as they used to but we know energy traders will take any excuse to raise prices!
At home we have a slight miss from HD but a 5% beat from WMT – who hit the top of their range at .63 on slightly lower revenues, which should help the Dow and encourage the retail sector (though I want to see TGT before I get excited). HD saw a big drop in big ticket purchases and blames the housing slowdown which may spook the markets.
There was a mass kidnapping in Iraq of 150 people early this morning, I wonder if it will even make the news here?
Today’s watch numbers are:
- Dow under 12,100 = bad, anything over is still good
- S&P breaking 1,390 will be a new high, 1,380 needs to hold
- NYSE needs to hold 8,800 with a new high at 8,873
- Nasdaq just broke 2,400 so just holding it will be great!
- RUT is above 770 (last week’s target) and I want to get greedy and look for a new high at 785 this week.
The SOX is nervously waiting the outcome of the Vista release. Asain chip makers have kept the semis down all fall as analysts fret over whether they have made too many chips and too many motherboards in anticipation of huge demand as MSFT releases the new system in January. There are still many, many good semi plays to be made if the demand comes through!
Like the SOX, the transports have yet to retake spring highs and we’ll see how they like today’s retail numbers. Any break over 2,650 will be a very positive sign.
Let’s look for oil to test the dollar adjusted 2.5% mark at $58.39 and hopefully will move down to the old, non-adjusted target of $57.15 on the way to a proper rest at the international 5% rule at $56.89. $59.89 (the dollar adjusted $57.15) has firmed up as a good cieling and if it holds for the week we will be in great shape!
Gold is iffy and we have to watch the dollar moves but I’m also watching platinum which is setting up for a fall. This would indicate that jewlery demand is dropping as platinum is not hoarded like gold. I’m still watching $615 as the danger zone for our gold plays.
If copper can’t get it back in gear – gold is almost sure to follow!
On August 14th, with copper at 350 I said:
“If you play metals, this might be a good day to short copper (although that has been a bad idea for the past 3 years) as Chinese demand numbers are being given too much weight. The Chinese economy is $1.5T and is growing at 10% – very impressive but also very offset by the $12T US economy slowing by 1%.
If you believe that US growth is falling on a turndown in housing, then a copper trader should be concerned that 35% of US copper consumption is in construction and another 10% is used in auto manufacturing. The US consumes about 25% of the world’s copper.
BHP Billiton may settle a mining strike that is holding back 8% of the world’s copper output and the contracts roll over next week so the August premium you see now may quickly evaporate over the next weekend.”
I was a little ahead of the curve but the markets did finally catch up to me!
==================================
Playing the role of “The Thing That Will Not Die” today is DHI, who beat estimates by only dropping income 50% to .88 against expectations of .69 (down 61%).
That drop included .39 a share of write offs but revenue was $1B (25%) ahead of 13 analysts estimates with the high estimate being $4.14Bn vs the $4.9Bn the company announced.
Down from $5.8Bn last year it seems to me the company has quickly gotten on top of the cost control thing and it reminds me of last November when we talked about their surprising strength after being sold off too far.
I won’t be here today but I like the Dec $25s for .25 as a momentum play (will probably open higher). But the analysts are so clueless here there will be lots of scrambling but this is a momentum play only and watch out for the 10 am CC which may unveil something uglier than the surface numbers.
==================================
There’s a theme to WMT, DHI and HD’s earnings – sales are down! We know gas sales are going to be off a bit more this quarter so it will be interesting to see how the hoildays shake out.
TGT had great sales so what we may be seeing is effectively the Consolation Prize Theory in action as people move a little more upscale with the money they used to spend on commodities. HD tells us people are putting off big ticket purchases as well which leaves plenty of money for smaller purchases.
Let’s look for impulse items and luxury goods to do well and perhaps a pickup in entertainment.
I’m always looking for an excuse to buy TIVOand I think video sharing over the web is a good one! It’s enough reason for me to get Tivos for the in-laws! May $5s are a medium risk at $1.40 and I’ll stop out at $1.
HD is going to trash my LOW calls but I think I will double down as I think HD may simply be losing a little market share.
SPLS came in-line with earnings, I would have preferred a beat it’s certainly better than a miss!
DKS was a beat yesterday, which should be good for the Jun $50s, but hopefully not so good that I get nothing for the puts!
Game on for DELL again with the Jan $27.50s at .65.
WSM Dec $35s are .70but let’s watch the descending 200 dma at $36.
TIF is a fun but risky play with the Jan $35s at $2.20 but not if they fall below $35 and not buying in below $35.50.
ANF Dec $75s are $3.70 we can sell the 60% of the position in the crazy Nov $75s for $2.20 and hope to beat $1.50 after the sales come out. This will lower the overall basis to $1.32 which I think I can live with…
I’ll be out today so be careful out there!
