Monday Moon Shot?

Was I right to hold on last week or are we going to regret reaching for the stars?

As I've said before, you can't take a trip to the moon without trapping yourself in a tiny little capsule on top of 10,000 tons of explosives while you wait for someone to light it.

It's the waiting that's the worst part.  After getting the year off to a great start with 3 fantastic weeks, we took a pretty big chance holding on (especially our oil puts) as the market went topsy turvey into expiration week.  Will we be rewarded and finally break over Dow 12,600 or will the Nasdaq engine continue to misfire and cause a catastrophe?

We've played this game before – we had a similar set-up on 12/18, when BRK-A topped out at $114,000 a share and gave us a good indication to get out for the pre-holiday week.  I called that one in the morning but with Berkshire now languishing under $110,000 and being a late reporter (Feb), I'm not sure we can rely on Captain Buffett to light our fire this morning.

The key to that rally (or potential rally as it turned out) was Hang Seng 20,000, which I predicted that same Monday (it took until 12/28 for the HSI to gain that last 1,000 points and hit my mark).  Today we are getting great numbers out of China with stunning subscriber growth from CHL and a $4Bn investment in China Re (by China) while India favors us with news that IBN grew net income 42% on strong loan demand plus a net asset growth of 39% from 22M customers.  Rising rates in India can put this bank into the $50s and I'm willing to pick up the Mar $50s for $1 as a momentum play.

It's another exciting earnings week and we will be able to start making some intelligent picks once we clear out the calendar!  This week we hear from:

• AXP (need 'em), CSX, FRK, PETS, PLT, PFE, TXN (got 'em) and UPS (need 'em) on Monday.
  • Consumer Confidence and Chicago Fed Index at 10am 
• AMD, BAC (got 'em), BLK,  CTX (got 'em), DD, DHI (got 'em), EXPW, JNJ, PNC, QLGC, STM, STX (got 'em), UAUA, XRX and YHOO (got 'em) topped off by USA (State of the Union) on Tuesday.
  • Redbook Sales (9), Richmond Fed (10), Consumer confidence (5). 
• ABT, ATI, CHKP (got 'em), CNH (need 'em),  COP (need 'em), EBAY (got 'em), FFIV, GD, GLW (got 'em), MCD (need em), NFLX, QCOM, RYL, SAP (need 'em), SYMC and TXT (got 'em) on Weds.
  • Refi Index – 7am 
• ALK (had 'em), BC, BMY, BZH, BTU, CSH, CY (need 'em), DOW (got 'em), F, LMT, LYO (need 'em), MDC, MSFT, NCT, NE, NOC, NOK (need 'em), PKTR, SU (got 'em), T (got 'em), UNP and WFR on Thursday.
  • Jobless Claims, Home Sales, Business Barometer (10), KC Fed Index (11). 
• CAT (got 'em), FO, HAL (hate 'em) and HON (might need 'em by then) on Friday.
  • Durable goods – 8:30 

Let's not forget that I reported back on 12/18 that the CSCO IPhone is a VOIP device that is being made for EBAY's Skype division so the earnings and guidance there will be very interesting!

Things are already interesting in Asia where the the Hang Seng closed at a record 20,772 (up 444 points) – aren't you glad we didn't sell those FXI Febs yet?  The Nikkei ran up to 17,424, the best close since April's top (and 6-year high of 17,563).  MTU, which no one reminded me to buy, jumped 2.5% and TM is on the rebound already.

No harm in missing MTU though, the Jan '08 $12.50s are just $1.45 and we will be able to sell the Febs against them (currently .45) as soon as we feel they are toppy.  Earnings are 1/31 and the consensus is they will do worse next year so there is a lot of room for an upside surprise.

Europe is also off to a decent start but maintaining the same slow, steady pace they've been on all year.  BAB is looking at a possible prolonged strike, this would not be good for people attempting to sell airline fuel!  They've called for a mediator but I like the Mar $100 puts for $1.45, both on this news and as a hedge against higher oil prices, stopping out at $110.

PFE is getting us off to a good start with a penny beat, but it remains to be seen if they are rewarded for it.  We need to set greedy targets today and exercise caution if we can't start breaking out of some of these levels: 

• Dow needs to pop right through 12,600 without looking back
  • Transports must retake 2,800 and hold it this time.
• S&P should fly by 1,430 but will likely pause at 1,440.
• NYSE needs to top 9,200 for us to feel secure
• Nasdaq is 2,475 or bust!  You really don’t want a bust when you’re in launch mode!
  • The SOX are the leaky seal in the airlock and we can’t take off our helmets until we see this gauge firmly above 460.
• Russell CAN"T have any more trouble with 790 or we may have to settle for a lower orbit!

Our pals in the oil patch are enjoying their final pump day.  With just  65,000 remaining open contracts for February delivery they have room to play but that still means they have to buy a barrel today and take delivery sometime in February – even rich guys hate to lose $5-10 a barrel so we'll get a good gut-check on the trading floor today!

Last month the January contract settled out at 77Mb and that turned out to be about 20M barrels too many judging from our inventory builds for the month.  With February being 10% shorter than January, it's a very brave trader who thinks he will offload 65Mb at $52.10 or greater.  The March contract is up to $53.40 as traders had to pay through the nose to roll 387M barrels forward a month.  Good luck selling those barrels guys!

Back home, it turns out total US demand for crude finished 2006 down 1.1% with a big finish at minus 3.3% for December!  US oil production was UP 6.5% for December – that makes it seem kind of silly to have 400Mb rolling in for March doesn't it?  Our December US production increase of 270,000 bpd is larger than China's forecast demand increase for 2007!

We're still waiting for that dollar breakout but Godot came faster!   

Our man Hugo is on the warpath, this time seizing Verizon's CANTV as a ready source of revenue to make up for the shortfall in oil proceeds.  Chavez only gets $46.87 for his crude at the moment and that has to hurt, especially with previously oil-rich Venezuela's inflation rate pegged at 20%.  In his radio address Chavez said "Go to Hell, Gringos!  Go home!"  This is likely to be the start of a campaign to villify the US and shift the blame for a collapsing economy that cannot be sustained on sub $50 oil. 

When only 3 countries in the World have the economic clout to bail you out – pissing off one of them might not be the best strategy!  Watch gold today for a real indication of gold's chances, can they hold $630?  CNBC is already in Mega-Pump mode with the headline "Crude Bounces Back" so you know it's true when they use alliteration.  They will play the contract rollover for all it's worth as they are guaranteed to be able to tell you that oil jumps a dollar tomorrow – sure it's misleading, irresponsible and possibly criminal market manipulation but, hey – people keep believing it so what the heck?

Hillary's running (sort of) and we had our second biggest death toll in Baghdad since the war started with 78 dead and 156 wounded as two cars full of explosives blew up a marketplace.  It was the same marketplace that 63 people were blown up in last month – if only we had 15% more troops, we'd catch these things right?  This is on top of the 25 American troops that were killed on Saturday (the army won't tell you how many maimed and wounded) .

I'm not expecting any big moves until Bush has his say and we'll need another week of earnings data to get comfortable in placing our bets but I'm all for lightening up UNLESS we are going higher – we are in a very dicey position right now, especially if we continue to look weak compared to Europe and Asia.

=========================================================

Congrats to the Bears and Colts for making it to the Superbowl – now let's make some money on it! 

No, not betting (Colts by 10) but one thing I always notice is that companies that advertise in the Superbowl tend to get about a 1% move in the week following the game.  While I wouldn't just invest willy-nilly, we do have some prime prospects to consider:

AAPL!  Little is known, but they are on the list.  Carl Howe agrees with our own Reinharden that that there's big news coming involving the Fab Four!  Carl also reminds us that Apple may have a real blockbuster in store – we all remember their 1984 ad 23 years later, even though they only ever played it once!

I've got my money on an ITV spot as the roll-out is scheduled for February and it barely got a mention at MacWorld.

BUD – 10 30-second spots!  Too rich for my blood at $51 but I'll be warming back up to BRK.A on a breakout (they own a lot of BUD).

GRMN (got 'em) – if this doesn't do it, we need to pack it in, just one spot though…

HMC –  3 spots, the Asian market's on fire and they are retesting $40 so I like the $40s for .90 but not if we can't break $40.15 so tight stops!

PEP – 3 spots in the first quarter – they must have something to say.  Also possibly in breakout mode after being hammered down to $65 ahead of expiration.  The April $65s are $1.75 and give them time to dip back to the 50 dma at $62 and recover, worst comes to worst…

TM will promote Tundra trucks – good if oil is $45, bad if oil is $55 again.

YUM – Taco Bell – good luck there!  I'm dying to see what they try to do to repair their image, my kid still cringes when we drive past!