The pre-markets are soaring!
As of 7:30 am the Dow is up over 100 points in pre market trading as everything that was a catastrophe last week is suddenly just a speck in our rearview mirror.
The hardest thing we have to do as investors is to be patient but we have plenty of bullish plays in place (I mentioned yesterday that we had 3 times more calls than puts) so we can afford to wait before jumping back on the bandwagon. Yesterday we grabbed the SPY $150s at $2.80 as a new upside hedge to our mattress plays but a weak open left us with less than we would have liked and the run-up in the afternoon forced us to sell half at $3.40 as it triggered our 20% rule for the day. It is MUCH easier to get in and out of index puts and calls on momentum than it is to go in and out of multiple trades so we use them to "mattress" our other plays in both directions.
I find the pre-market movement very surprising ahead of what is going to be a very heavy data week. Next Tuesday at 2:15 we have the FOMC statement and investors are now betting heavily on a softening which I don't believe is possible, especially if this week's data comes in heavy:
| Date | ET | Release | For | Briefing.com | Consensus | Prior |
|---|---|---|---|---|---|---|
| Jul 31 | 08:30 | Personal Income | Jun | 0.5% | 0.5% | 0.4% |
| Jul 31 | 08:30 | Personal Spending | Jun | 0.1% | 0.1% | 0.5% |
| Jul 31 | 08:30 | Core PCE Inflation | Jun | 0.1% | 0.2% | 0.1% |
| Jul 31 | 08:30 | Employment Cost Index | Q2 | 0.9% | 0.9% | 0.8% |
| Jul 31 | 09:45 | Chicago PMI | Jul | 59.5 | 58.5 | 60.2 |
| Jul 31 | 10:00 | Construction Spending | Jun | -0.1% | 0.2% | 0.9% |
| Jul 31 | 10:00 | Consumer Confidence | Jul | 109.0 | 105.0 | 103.9 |
| Aug 01 | 10:00 | ISM Index | Jul | 56.5 | 55.5 | 56.0 |
| Aug 01 | 10:00 | Pending Home Sales | Jun | -0.6% | -3.5% | |
| Aug 01 | 10:30 | Crude Inventories | 07/27 | NA | NA | -1103K |
| Aug 01 | 17:00 | Auto Sales | Jul | 5.4M | 5.4M | 5.2M |
| Aug 01 | 17:00 | Truck Sales | Jul | 6.9M | 6.8M | 6.5M |
| Aug 02 | 08:30 | Initial Claims | 07/28 | 310K | 310K | 301K |
| Aug 02 | 10:00 | Factory Orders | Jun | 1.1% | 1.0% | -0.5% |
| Aug 03 | 08:30 | Nonfarm Payrolls | Jul | 150K | 135K | 132K |
| Aug 03 | 08:30 | Unemployment Rate | Jul | 4.6% | 4.5% | 4.5% |
| Aug 03 | 08:30 | Hourly Earnings | Jul | 0.3% | 0.3% | 0.3% |
| Aug 03 | 08:30 | Average Workweek | Jul | 33.8 | 33.9 | 33.9 |
| Aug 03 | 10:00 | ISM Services | Jul | 59.0 | 59.0 | 60.7 |
We've had strong earnings from F and (even more surprising) GM, which means I may be way too bearish on the economy as both of these companies are highly dysfunctional but, in line with my more macro theory, International sales more than offset sluggish domestic demand and the rising global economy will lift all ships, including ours.
Abby Joseph Cohen of GS was on CNBC this morning declaring the S&P undervalued and putting a 1,600 target on the index (up 10%) by the year's end. This is in line with my Dow 15,000 target (for next June) but I still want my correction and it's very annoying that, every time the market takes a little dip, people keep running in to save it. Let it fall people! It's a big market, it can pick itself back up – let it leave the nest!
No one in Hong Kong was patient as the Hang Seng flew the coop, shooting up 445 points on the day as China once again took a Central Bank tightening move as a good sign, pushing Shanghai B-shares up 2%. The A-share side of the Shanghai is now at 4,689 and may really take off if they get out of the 4s. Let's keep in mind that there are TWO countries (China and India) that have EIGHT times more people than the US does that are growing THREE times faster than the US is, which translates into $1.5 Trillion in new business this year – that's the bullish global premise in a nutshell!
Europe was thrilled with Asia's performance and those markets are up 2% this morning on no particular news but the rebound is looking (at 8am) pretty strong ahead of our critical data release. I don't think we will have to wait to long to see how serious our markets are about taking off as the income, spending and PCE numbers should tell us all we need to know as we can extrapolate 10 am consumer confidence from that.
8:30: And the numbers are in! Income up .4% and spending up .1% with a .1% PCE deflator all pretty good news for the Goldilocks economy but durable spending was down and savings rates are up, which means consumer confidence is likely to be a slight miss. I'm still maintaining a cautious stance but will not shy away from picking up some global plays like adding to LTP plays like our CAT Jan '09 $80s at $11.50, which have been a solid income producer and our new UTX Jan '09 $80s at $7.30.
We'll be watching those same old levels as yesterday but the S&P remains well below our 1,505 comfort zone and the NYSE will have to retake 9.800 to impress me while the Russell is miles away from 830 so it's all up to the Dow breaking out over 13,500. As much as Dow leadership scares me, it is logically in-line with my global bull premise and we'll have to go fishing for bargains in companies that have better than 40% international exposure (but NOT financials – still too scary!).
Happy Trading is targeting CELG over at Wang's World and I like that play too as the company is swimming in $2Bn of cash and just $400M in debt and has been a very steady grower for a biotech who's forward p/e has dropped to 37 after a 13% beat last Thursday. We missed the first $4 of the rally but the stock is off the high of $66 so we both like the Sept $60s but if you missed Happy's 7/27 calls (or even if you hit them), it's a good time to roll to the Sept $65s at $1.85, setting tight stops on your profits on the $60s:
Oil is well over $77 in early trading and for that reason alone (oh wait, that AND sub-prime) I will continue to roll up my DIA puts, keeping them tight to protect my possibly ill-gotten gains of the past 2 days. We will use my VIX theory to determine how seriously to take this market move but I have a feeling selling the 20s will prove conservative if the market retraces more than 50% of last week's losses.
Zman has an excellent preview of the energy markets and we are keeping an eye on the possibly explosive situation in the natural gas markets as speculative short positions have climbed to painful levels. VLO came through with great earnings (very good for our Sept $70s) but we'll be taking profits on the refiners as this party is clearly over in Q3:
I'm thinking a bear call spread will be appropriate here if they run up too far but if the management is honest, then guidance alone should kill this stock very quickly, along with many others in that sector.
It's shaping up to be another interesting day and we'll have to be fast on our feet but I STILL urge caution and patience. If Abby Cohen is right (and she has a Trillion dollars backing her up) we have a looooong way to go in this rally so let's scale into new positions and make sure we're on the right track before we celebrate being even for the month (Dow opened at 13,422).
