Big data week! Really Big!
NY Manufacturing this morning , Consumer Confidence this evening (plus INTC earnings). PPI, Refis, Retail Sales, Industrial Production and the Beige book on Wednesday. CPI, Jobless Claims, DJ Business Barometer, Consumer Confidence and the Philly Fed on Thursday… a pretty busy week!
Lots of earnings too!
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Intel tonight and CBH (my favorite bank) – WFC also worth noting.
- Bush gives us the State of the Union tonight – this should be entertaining!
- Wednesday we have Apple, JPM, LEN, WM, LUV and AMR.
- Thursday we get COF, CAL, HOG, NVS, UNH, IBM, XLNX and MER
- Friday we have C, GE, SLB and MOT!
CTX warned with a projected loss today so LEN will be very interesting! Only one of the 15 analysts who cover CTX rated the company as a sell and that brain trust came up wth an average estimate of .81 for Q4 earnings, which still would have been 1/3 of last year's $2.52 but CTX says that was WAY to generous! How generous? Well it looks like about $2.80 too generous as the company is looking at a loss of $2 per share!
A 12% drop in home closings and a 24% drop in sales means less homes are selling for WAY less money and the company is writing off $300M in "land adjustments."
Even without the adjustments, the company still missed by about 8%. The full extent of the damages will be revealed on Jan 23rd. Well, it has to get better from here right? No. New orders are down 24% despite all the rebound news the PR monkeys shoved down our throats last week!
Back in November I wrote a piece on what to watch out for in Homebuilders and CTX is a textbook example of one that expanded themselves to death. Now that earnings season is finally here, there may be a harsh day of reckoning approaching for some (we already have many HB shorts).
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Asia had a very mild pullback (10%) of yesterday's huge gain as both Samsung and LPL are having trouble making money despite booming sales of flat-panel TVs. This is why we play the people who sell stuff to them (TXN, GLW) rather than the actual manufacturers!
China is considering giving $2Bn to 3 major airlines (they don't even bother to pretend to be neutral) which is reason number 26 of why I hate to invest in Asia! It's hard to compete when they other guy get's to buy planes for free… Smaller Asian markets continued to gain with the exception of South Korea, led down by Korean Air, who were not given $2Bn, making their shareholders sad.
Europe is flat today with German Unions pushing for more money and the markets in general are looking for more direction from us. There's a big brouhaha brewing in the credit card biz as the EU is looking into the entire practice of how credit card companies set fees. This is potentially devastating news for MA (who we have puts on) and Visa (about to go public) but not for AXP, who don't handle fees the same way as the others.
It's up to the US markets to show us the money this week and we should get off to a good start as we fell behind the world yesterday, let's see what we can hold onto:
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Dow is actually looking at 12,600, holding that would be amazing! 12,500 needs to firm as a floor.
- Transports need to take out 2,800 for that to happen with 2,750 being their floor.
- S&P is aiming at the ATH of 1,432 and it will be a disappointment if they don't make it.
- NYSE likewise is heading to 9,210 and we would hate to see a rejection.
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Nasdaq needs to continue leadership above the 2,500 mark, we are in uncharted waters here!
- SOX are still well below last spring's 559 and must get it together (it's all up to INTC tonight!).
- RUT still needs to retake 800 and post an ATH at 802.
I'm not banking on any spectacular moves today as commodities will continue to drag down the markets but, at 20% down from last year, already their influence on the broader markets is waning.
8:45 Update: Oops, the NY Mfg. Index was a huge disappointment – so much for a big market day! Any pullback over .5% is very bad as this news is really not as surprising as the analysts think and will take the Fed back off the table. The big danger is that it gets confirmed by other bad news during the week.
They are trying and trying to get something going in oil, CNBC is almost desperate trying to find something to get people to buy some but IT JUST KEEPS FALLING! Let's not get too excited, remember how awful we felt on Friday and be prepared to take some profits off the table if we get a good drop but I feel very good about our oil puts.
We need to keep in mind that the February delivery contract expires on Monday and my best guess is they need to take it down to 100,000,000 barrels which means 100,000 contracts need to be pared down over the next 4 sessions. Since March ($53.87) is already loaded with 295,000,000 barrels scheduled for delivery that month, it would take a tough roll into low demand April ($54.66) in order to avoid taking the loss on the February contracts.
Since we're talking about $6Bn worth of oil that needs to find a buyer in the next 4 days, it will be a real gut-check for the energy traders this week and we'll follow that action closely. I apologize to the people who have no interest in oil but this is the most exciting thing in the markets right now!
As I mentioned on the weekend, oil storage is literally at the point where they have to dump it into the ocean to get rid of it. Aside from the fact that the EIA routinely underreports actual storage levels, on thing we do know is 325Mb is a lot! Now here's the thing – just like with nat gas, you can see how typically we get a build of 30M barrels between Jan 6 and April 6 – where are they going to put them? Ice storms don't help because people don't drive in ice storms…
The dollar is consolidating for a move over 85.5 which, if executed will throw oil into the $40s for the first time in over 2 years, although the dollar has been much higher as recently as early '06. Our current oil targets are $52.10 on the way to $50.79 and, hopefully, $49.50! Expect a lot of upside resistance at $53 but no real danger until we cross $53.40. All this changes on Friday or Monday when they roll the contract.
Gold has done a hell of a job getting back to $630 for no reason whatsoever and we'll see how it holds up wedged between the 50 dma at $630 and the 200 dma at $621 but take any trouble it has getting over $625 as a very bad sign. Copper is heading back to $250 and since most gold miners are copper miners too, what do you think they do when they're not hitting their numbers selling copper? That's right – they sell more gold!
I may have jumped the gun in August when I wrote: "Gold: Heading for a Trainwreck Due to Oversupply?" but that's the problem with fundamentals, it takes the charts a while to catch up sometimes!
HPQ claims to have just given new life to Moore's Law with an 8-fold increase in the number of transistors they can put on a chip. Nanotech is the key and this will be huge if the process proves out as it can be adapted to existing fabs. We just rolled out of HPQ Jan $40s on Friday but I'm going to grab the Feb $45s for .75 as a placeholder while we decide what to play.
This will also shine a light on TINY, a nanotech basket that I really like. I was going to wait for them to retest the 200 dma at $12 but we don't want to miss them if they pop so I'm going to open up the June $12.50s for $1.10, which gives us lots of outs. When I first picked these guys on 8/29 I said: "It has all the volatility of a nano stock but without the total wipeout that 3 out of 4 of them tend to have! My favorite holdings of theirs are Chlorogen, D-Wave, Nanomix (see article) and Nextreme, who recently got CIA funding."
AMTD had great earnings and OXPS (1/31) makes a nice play off that with the Feb $25s at .70 but this is a high-risk earnings play!
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We have a lot of open items and I'm going to try to cut some back asap so we can position for next month's options. Setting 20% (OF THE PROFITS) trailing stops on whatever is up by 20% or more on Jan and Feb plays. That means if the option goes up 25%, we get out at 20%, up to 30% – out at 25%, up to 40% – out at 32% etc….
Most of our underperformers are in oil and housing so let's watch out for those on a bounce. There will be a lot so don't expect me to be on top of all the moves today as we also need to manage our sales.
As with all our plays – do not let calls you sold expire in the money! It's more hassle than it's worth so buy them out or roll them into February!
The Apples have to be watched closely as we sold the Jan in-the-moneys but earnings are Wednesday night so this is a Thursday play.
ANF is great if you have the Feb $72.50s but a problem if you sold the Jan $70s for $2.50 (now $8). That's the danger of selling lower calls and this will probably end up about even.
This will be a good day to take out our DIA Jan 125 caller as they should lose value fast on a dip. I will be very sad if the Jan $123.75 putter comes anwhere near the money!
I'm letting the clock tick on my EBAY Jan $30 caller.
FDX finally got an upgrade! Wooot for those of us who have it!
GOOG needs to be watched carefully but paying the $500 caller off is the price we pay for being careful on the Feb $510 call!
HAS is right on the button with our Jan $27.50 caller
HRB is way over our target and I'm going to cut this to the wire.
ORCL also right on the button.
RIMM no danger – I think – on the $125 puts sold.
SPF right on the money
YRCW – ALWAYS SELL INTO THE INTIAL EXCITEMENT – that's why we also have the Feb $40s. The Jan $40s absolutely come off the table!
WCI is going to be a wipeout as Icahn raises his stake in the company!
