Well this week is already flying by isn't it?
It's going to be a light volume week but it is not a light data week so hold onto your hats as we have a lot of catching up to do! We got the disastrous Existing Home Sales report on Monday but we get Fed Minutes today at 2pm along with ISM and Construction Spending after the bell at 10.
Tomorrow we see Auto Sales, ADP Employment, Jobless Claims and Factory Orders. Friday we get Nonfarm Payrolls, Unemployment, Hourly Earnings and ISM Services. Next week we get Pending Home Sales and Consumer Credit on Tuesday, both of which are likely to be scary. We get Wholesale Inventories next Wednesday and Thursday is trade day with Import and Export Prices along with the balance of trade followed by what promises to be a bloated budget report for December. All in all, I'm not seeing a lot to rally around but expiration week will give us Retail Sales, PPI and CPI which we have very low expectations for so things could get very interesting on the 15th.
To complicate matters more, it's earnings time already! Tomorrow morning we find out if MON is as good as people think (I'm concerned about fuel costs but mainly they use nat. gas, which has remained calm despite oil's rise) and we hear from BBBY and SONC after the bell. TXI will be critical to watch on Friday morning as their group has been a drag on the materials sector in '07 and will be a very good signal of construction health (or lack thereof).
Next week we hear from (in order of reporting) CELG (got 'em), STZ, GAP, KBH, SCHN, APOL, HELE, TONS, AA, RT, MTB, MTG, IHS, SHFL (got 'em), PAY and INFY (need 'em). By the week of the 14th, the action will be hot and heavy, highlighted by C (got 'em), INTC (got 'em, need more), JPM, SGR. many airlines, most of the regional banks, JCI, some of the brokers, STJ (need 'em), SLM, IBM (need 'em), KMP (need 'em), XLNX, GE (got 'em) and SLB.
Option players need to always be very aware of the earnings dates on their securities but this time of year it's important to know who ISN'T having earnings prior to expiration as it's a huge opportunity for us to profit from selling overprced calls. We touched on this last year in "The Crushing Effect of Implied Volatility and How to Profit From It." and we discussed this on Monday as, aside from obvious plays on Apple and Google, who report at the end of the month – we will be looking closely with members at short diagonal spreads on people who report later this month and this is a game we can play through the end of earnings season.
Asian stocks took a mild (1.5%) hit today, led down by Pakistan's 2.3% drop as they postpone their elections for 6 weeks, almost as if they are begging for riots to break out so they will have an excuse to bust some heads. "Window-dressing activity near the end of 2007 boosted local stocks, and thus we see some profit-taking today," said Y.K. Chan, a fund manager at Phillip Asset Management. "But in every year the first trading days tend to be quite volatile, and since overall the turnover was low, today's fall isn't indicative of the market's sentiment."
"Investors are no longer enamored with banks and properly developers, as both sectors have the cloud of 'macroeconomic tightening' hanging over them. They're buying food and drink makers, because the consumer goods sector is one the government won't interfere with, and food prices are rising," said Orient Securities analyst Zhang Yang. The food component of the consumer price index was up 18.2% in November from the same month last year, according to government data.
Europe is putting on a mixed show as our our indices pre-market. Oil is rocketing up as the pumpers make another attempt at $100, which is proving to be a pretty tough barrier over at the NYMEX. High oil prices are no help to the RDS.A, the World's 2nd largest oil company, who have had to undergo severe cost-cutting measures to get back on track. Included in Shell's measures are 3,000 outsourced IT jobs – one of the reasons INFY is on our "need 'em" list. The $25KP play I want to make on INFY (10 contracts) is: Selling the $45 calls for $2.30 and the $45 puts for $1.80 for a net credit of $4.10 and buying the Feb $45s for $3 and the Feb $40 puts for .75. This is a net credit of .35 and the risk is to the downside but, obviously, we're playing for an upside move where we pocket the extra $1 spread on the puts while we enjoy an upside run. Last Jan's earning gave INFY a $5 pop with a run from $53 to $61 in early February and income has been up over 50% this year.
Gold is touching the $850 mark this morning (which I predicted last week) and oil is just under $98 with probably another inventory draw coming up tomorrow so it's $100 or bust this week. $99.29 is the all-time intra-day high, I can't imagine the Transports or the Dow in general will be very happy about this. Even XOM is pretty much the worst off as they import 1.2M barrels a day but all the majors are huge importers of oil and those variable costs get very nasty at these levels, especially with continuing builds in gasoline that keep the pressure on sale costs and kill refining margins. Tomorrow we will be much more concerned about gasoline than oil as the crack spreads continue to deteriorate for the refining sector.
I don't have much to add to my take on the US markets other than what we talked about Monday with our index round-up. I'll be working on more predictions over the weekend but down, then up, then down a bit seems right for the year.
We'll see what kind of start Wall Street can get the year off to but I will be slow coming off the sidelines until we get a chance to see how all this upcoming data is taken, we have quite a wall of worry to climb in '08 and I'm still kind of sore from last year…
