Which Way Wednesday?

Profit taking at 28,800?

No, who could have imagined that would happen?

Apparently, not anyone at CNBC did, as they all act like a 719-point pullback on the Hang Seng (actually a 1,300-point drop from the day's high) is some sort of crisis, rather than a minor pullback off an 8,000-point run that began August 17th.  GET SOME PERSPECTIVE PEOPLE!  The reason we've been pressing our puts on the FXI is because it was a near certainty that they would get a 1,500-2,000 point pullback (20%) sometime before making 30,000, which would be a 50% gain on the year.  As with the Dow on Monday, what doesn't kill them only makes them stronger – something Happy Trading calls "healthy venting" during a rally.

We're going to ignore that today (the Hang-Seng I mean, we always ignore the nonsense spouted by CNBC) as there was nothing fundamental over in Asia that would have caused the sell-off in the Hong Kong market.  The Shanghai composite had no pullback and the Nikkei went up 153 points as broker Nikko Cordial went limit-up 14% as C announced it was paying $4.6Bn for the shares it doesn't already own.  This is interesting because we were just talking about Citibank in member chat and MJ said "Why does CNBC despise Citibank’s current CEO so much, that they have to keep repeating that he has to quit like 10 times every hour?"  To which I responded: "That is an interesting vendetta they have going there. Probably because C is GE Capital’s largest competitor for corporate loans. Revenues at C have gone from $54Bn to $96Bn since Prince took over and net is up from $17Bn to $21Bn but the bank is in a heavy investment cycle over in Asia and has established themselves as the top foreign bank (unlike GE, who dragged their feet). By constantly calling for Prince to “return more cash to investors” what CNBC is saying is “stop investing in the future.” Ah, there’s nothing like controlling the media is there?"  Well, case in point with the Nikko deal.  Always be aware of who the person spouting off works for…

Also very exciting for us is the fact that Chinese oil stocks fell hard as we had a heavy short position on PTR as that rally looked overdone too.  Just like our FXI puts, we've been chasing PTR up the ladder to end up with the Jan $185 puts, these we will take 1/2 off on the initial dip to reduce our basis and take us back to our original 20 contracts but now we don't have a pressing need to cover (although we might daytrade selling the $180 puts to play the morning bounce!).

India popped 3%, up 518 points on the day, making a new all-time high of 17,878 before pulling back 31 points at the close – not bad after a 500-point day.  I don't want to shock anyone but the Hang-Seng may be manipulated slightly and our pals at CNBC may be helping their buddies to shake out some weak hands prior to lifting our markets to fresh highs.  As I mentioned yesterday, we took our index puts in anticipation of just such a move so let's keep emotion out of this and watch our levels. 

Checking in with the Big Chart after a week shows we've made some tremendous progress but, as usual, there's certainly room for improvement:

Well, you can't say the Nikkei isn't trying can you?  Look at the moves in the European markets compared to the Dow – those indexes are 1/2 the size of our so they've made proportionally MUCH better moves than we have.  Asia has simply blown the doors off our markets the past week AND THEY HAD A HOLIDAY!  We still have a long way left to run so let's not let CNBC force us into panic mode because the Hang Seng gives back 2.5% after a 50% run for the year.  As Cramer is fond of saying: "They know nothing!"

Europe seems to know nothing about an Asian meltdown as those markets are cruising along flat ahead of our open.  DB stepped into the earnings confessional and took $3Bn in charges for bad loans.  As with C and others on Monday, this is a blip in a quarter for these mega-banks and DB is trading UP in Europe as investors are relieved.  It's the smaller banks and mortgage companies we need to worry about and we'll be keeping a sharp eye out for those earnings.  Also, the big banks are throwing in every loss they can find this quarter so they can bury their other mistakes under the giant umbrella of "write-downs" which bodes well for subsequent quarters.

No major news at home other than both MSFT and VZ attempting to challenge the IPod and ITouch.  I just broke down and bought the IPhone and I wish those guys luck as I'm simply thrilled with mine and anything that pushes Apple to keep making improvements will keep me buying more IPhones for many years!

We're going to be very happy with our various puts this morning, especially the oil puts as PTR (see last night's post) and now COP give warnings on drastically reduced (50%) refining margins.  This  was my premise for shorting the majors ahead of the Q and ZMan and I will be discussing this live at 10:25 on Market News First with Andrew Coffey.  Last week, in our broadcast, we selected the XLE Sept 30th $75 calls for .45, which ran up to $1.50 on Friday as well as a day trade on the XLE Sept 30th $75 puts, which went from .65 to $1.20 that day, making the calls actually a free play and easy to hold.  I also picked the COP $85 puts for $1.15 as my favorite major short at the time and, in yesterday morning's post, I told you that we had cornered the market on those XOM $90 puts at .65.  Also on MN1 two weeks ago, I gave a major rant on how Google was totally underpriced at $540 and the week before that we took RMBS calls (a triple so far) so I really do recommend our show if you want some nice trade ideas.

Speaking of Free Picks – we made our DD play (also from Monday's post) on our Happy 100 play of IMCL and today is the day that pays off in spades as Erbitux gets approval for a kinder, gentler label, allowing more use for colorectal cancer (ie. more money!).  "Erbitux is now the only approved biologic therapy to demonstrate improved overall survival as a single agent in patients with metastatic colorectal cancer," Martin Birkhofer, vice president of oncology global medical affairs at Bristol-Myers, said in a statement.  BMY was one of our LTP picks from way back, doing fantastically as well!

It's going to be a bumpy ride today so fasten that seat belt!