Hey, I'm getting pretty good at this predicting thing!
We are getting, of all things, a tech-led rally and the Nasdaq is resting just under the 2,380 mark and the Russell is making rapid improvements, crashing through my 712 target from Monday, putting us in our "Feeling Better" zone everywhere but the SOX – who are valiantly attempting to catch up with a 5% move on the week but are still miles away from anything that's really going to make us feel better.
"I've got to admit it's getting better, better
A little better all the time (it can't get no worse)" – Beatles
It can't get no worse has been my premise for this rally and my bottom call at 12,000 but the question now is: "How much better is it really getting?" In just 3 days this market has shifted back from depressive to manic with traders picking up everything that wasn't nailed down today with every major index gaining at least 1% giving us our first 3-day advance since right before XMas (when the market crashed the next week). Since our bottom on 1/22, we've had 10 of 16 positive sessions with the great bulk of our losses coming on the 5th (down 366), when we got that terrible ISM report that everyone seems to have forgotten about already.
I would have preferred it if the energy sector hadn't played such a prominent part in the rally. Despite another large build in crude inventories, oil stayed at a still painful $93.22 while the energy sector jumped 2.4% and oil services gained a whopping 4.2% on the day. It is XOM's turn to take a production hit (you can't expect Shell to shut down Nigerian production EVERY time a teenager with a gun in a motorboat gets rowdy) as they play out their grand theater with Chavez.
My own prejudices about the ridiculous scam of oil aside, the OIH group looks poised for a very nice run if the market keeps heading higher. The service sector has long been the part of the energy sector I won't short so I don't mind going long here with the Jan $170s at $22.65, which I really like as we can sell March $175s for $4.50 but we can afford to hope for more and backstop the downside with a sale of the March $170s at $5 (now $6.78) if it heads the wrong way on us.
As a pair trade, I like the COP Jan $85 puts for $12.85 as I think natural gas prices as well as refining margins will be coming down, even if oil itself does not. March $80 puts can be sold for $3.75, a pretty good one month return with $2.40 of that price being premium. This reflects our short-term expectation that oil will retest $95 but will fail to break $100 and take a pretty nasty turn down by March.
Bush did sign the $168Bn stimulus package which even Arthur Laffer criticizes as "a zero sum game" that is a TREMENDOUS waste of $168,000,000,000, which is a lot of money, even if it is only dollars. Bush's very strange insitstance on pointing out that he only wanted a "temporary fix" just baffles me, not just because giving us $600 sometime in May doesn't even accomplish that but that we, as a nation, have so lost our economic minds, that we think spending $168Bn on a "temporary fix" is somehow a good use of our limited government resources. Does anyone even take economics anymore or is it just one of those empty phrases they like to put on a banner behind the President?
Bernanke, Paulson and Cox get a chance to take their show to Capitol Hill where they will answer very dumb questions about the economy posed by the Senate Banking Committee. The Senate just had the chance to warm up by grilling Roger Clemens yesterday but the Banking Committee, headed by Chris Dodd (who lost his bid for President so quickly no one even noticed he was running), who is already on record saying: "The industry and the Administration are running to catch up as fast as they can to a problem that is getting broader and deeper by the day, but they seem to be falling further and further behind. This plan, while a step in the right direction, will not stem the tide of the millions of foreclosures we are facing in the coming months."
So don't expect tomorrow's meeting to be a love-fest as Dodd, Reed, Shumer, Bayh and Casey will get the majority of the floor time and all will be looking for party points that will be scored each time they can hit the administration's team with an economic zinger.
If the market survives this circus, I may be in a downright good mood but, until then, I'll still be taking today's gains with a Lot's wife-sized grain of salt!
