Thrill a Minute Thursday

Fasten your seatbelts, we're in for a wild one!

Asia saw something they liked this morning (perhaps it was DHI's CEO's statement that 2007 was going to suck) and exploded out of the gate.  With all due respect to the elloquent Mr. Tomintz, I think that our own Super Banker, Paulson, made all the right moves on his China trip as he turned around market after market on his world tour.

"Efficient, developed capital markets will allocate resources more effectively and efficiently, allowing China to continue growing at a healthy pace, while spreading prosperity throughout the economy and giving Chinese citizens a better return on their savings and investments," Mr. Paulson said in prepared remarks for a speech today at the Shanghai Futures Exchange.

Way to read them the riot act Hank! (he was supposed to be there to push for currency reform but turning around global markets is so much more fun).

The Hang Seng gained 256 points (24% retracement of drop), Nikkei up 325 (28%) and India up 435 (28%).

Speaking of Paulson, GS boosted Toshiba's stock 4% with a buy, citing "a likely bottoming in the price cycle for NAND flash memory in the January-to-March quarter."  Nippon Steel gained ANOTHER 3.5% and, like I said yesterday when Daewoo and Posco rallied, "people over there aren’t all that worried about a major slowdown."

Not much of note is going on in Europe (as usual) other than the fact that Russia is trying to give Iran a nuclear reactor but Iran can't keep up with the payments ($25M per month).  Atomstroiexport Vice President Yevgeniya Neimerovets said Iran hasn't made any payments since Jan. 17, which "has put our partners and subcontractors in a very difficult position."  Do I even have to mention how frightening it is that, not only are the Russians building reactors for other countries but the do it often enough to have a company called "Atomic Exports."

The DAX is on a 30% rebound (6 am), the CAC 40 has retraced 40% and the FTSE has come back 37% in the last 3 sessions.

Pure Fibonacci retracement levels are 38%, 50% and 62% so bear that in mind as we try to determine whether this is a rally, a bounce or just a minor interruption in a significant downturn.  Once we get past a 50% retracement of the drop, we can pretty much assume this very wimpy pullback was nothing more than a downward spike – just one of those great coincidences where a relatively small foreign exchange sells off, an important person says something negative about the market (like Recession!) and the current Fed Chief says we are heading into a "deficit storm."

All this causes retail shareholders to panic, dumping all their nice gains so that institutions can come in and scoop them up prior to taking the markets up to the next level. 

We went through the same sort of shake-out at Thanksgiving but let's not sound the all clear until we make and hold proper levels.  It's not even a recovery if we get to 50% but let's at least look for 33% on this "Global Rally:"

Is that really too much to ask?

We'll see if oil really does defeat us by breaking $62 today.  If it does, I think it will fizzle the rally and I was betting it wouldn't because we got out of our oil calls yesterday as I called a top at 3:29 when I tried to buy SUN $65 puts but accidentally bought SU $65 puts.    It turned out to be a good exit for our calls but it remains to be seen whether the put plays will work out today.

I'm only going to be comfortable with a "recovery" if it does not include the commodities.  DHI's assessment of the housing market should take care of the homebuilders but we need to NOT see the miners and refiners flying back up or we'll just be playing the same old song as last year.

The dollar had another rotten day yesterday and we really don't want to fall below 83.5, although we went form 85.5 all the way down to 82.5 around Thanksgiving and then had a nice stock and dollar rally after that.  Gold may test $660 again

Speaking of Fibonacci retracements, Bush's approval rating has slipped to near critical lows at 35%.  Hillary still leads the Dems 47% to Obama at 39% and Giuliani is trouncing McCain 38% to 24%.  Only 16% of the people polled feel the economy will improve this year (talk about a wall of worry) and only 31% (not even all the people who like Bush) of the people polled favor sending more troops to Iraq and, of those, 8% "do not feel strongly" about it.

33% means if you like Bush and you are sitting in a movie, chances are the person on your left AND on your right (even the far right) doesn't!

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Lots of fun things to look at in a rally but let's see where our virtual portfolio concerns should be.  These are things I will be looking to do if the averages continue up and at least 2 of them break our levels (likely NYSE, SOX and RUT):

STP (not the China Stock):

• DELL Apr $25s at .15
• DD (10 more at .15)
• New basis =  .65
• Add 20 May $25s for .30
  • Sell 20 Apr $22.50s for $1+ but no less than .80

• DIA – must take out 1/2 $122 caller at open (try to catch the askl before the bell), just in case we get a big run, 20% stop on the rest – just a bad trade if we have a big run.

AAPL – not worried, AIR – happy, AUY – a hedge, BEAV – DD, BTU – Stop at $1.45, CHK – dead, CNE – nc, CSTR – fine, FDX – Fine, GE – Fine, GFI – fine, GME – DD at .20, GOOG – 20% stops on $460 and $470 callers (tempted to DD my $470s at $2 and $480s at .88 on a nice run), HPQ – taking out March $40 caller at .55, HRB – DD $1.10, HRL – DD .30, IMAX – dead, INTC – fine, LLY – DD .40, MC – selling $20s even and taking 10 Apr $20s for .65, MRK – fine, MRVL – fine, NEM – hedge, ORCL – dead, PD – waiting, PHM – dead, PTR – 20% stop on Apr caller, SBUX – fine, SHLD – great (may need to roll), SII – 20% stop, TSO – DD at $1.25 of less, TXT – dead (want more though), XOM – reduce at .30 or better, XTO – 20% stop, YRCW – fine.

20% of profits trailing stops on all March and Apr calls!!!

Challenge Virtual Portfolio:

There are 2 huge problems with the challenge virtual portfolio.  One is that you can only buy at the bid and sell at the ask, that means the orders I post are not optimized and that matters A LOT.  The other issue is that trailing stops execute terribly, renering them fairly useless so we need to discuss this over the weekend but I'm not sure these issues are resolvable.

ATI – fine, AXP – fine, BA – fine (if not, time to sell everyting!), BEAV – fine, CCJ – fine, DIA $122 caller – same as above try to get 1/2 off the table, DIA puts sold – fine, DNA 20% stop on the caller, EBAY – fine, FXI – fine, GOOG – fine, GS – be happy to get out even, HRB – fine, ICE – DD at $3 on a move up, INTC – fine, MGM – fine, MRK – fine, NEW – gamble, PEP – fine, PGR – fine, SHLD – fine, SIRI – fine, SPY – YAY! (don't be greedy), STZ – 1/2 out at .50+, XOM – sell puts again if it breaks up.

The LTP will be reviewed over the weekend.

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We got a reset on the XOM $72.50 puts so they can be sold again on a run-up but let's not forget that they turned around hard at $72.70 (now $72) so it's a very dangerous mo trade.  On the whole I'd rather be selling calls into the initial excitement than buy them myself. 

In my own portfoilo I have sold GS $200 calls against my $210s and I've been starting at them and I just don't think they're going to make it (but what a dangerous game!).  So wish me luck there but I'm getting the heck out if any couple of brokers take off.

I don't want to go crazy here – the GDP was NOT good, the HB reports are not good and the ECB raised rates, which was expected but puts more pressure on the dollar.  I would say that if this is a real rally, we need very good SOX and TRANQ performance as well as GOAX (GOOG/APPL/BKX) otherwise we could be the suckers in the sucker's rally!

WMT had lousy sales – that's a big, scary negative but high-end (JWN, SKS) are doing well.  FD was so-so so we'd better think about selling April $40s for $4.40 or whatever if they fall below $43.50.  We can always roll them up but it's harder to roll them down!

ANF had a big miss!  They've already sold way off and if they drop then we've got sentiment problems.  Pier one is still dreadful (-8.4%) as is Sharper Image (-25%) and it really is time to kick them out of this index!

$463 is GOOGs big resistance and they are ready to break out – I may take my chances with the $470s, especially if they get a nice sell-off early as they often head fake big moves.

Since JWN and SKS did so well I'm goign to grab COH Apr $47.50s for $2.50 if I can (but it's coming down so no hurry).

BUD Apr $50s for .85 as a mo trade.

BKS May $40s for $1.50 seem pretty cheap here.

COST sales sounded bad due to charges but not really bad.  Let's watch this but keep an eye on Apr $55s cheap.

CMI splitting.

GD raising dividend, $75s for $1.80 as a mo play, half out at $2.20 with a .20 trailing stop.

HOTT not as bad as expected. Apr $10s are $1.35.