Thrill-Ride Thursday

Wheee, another fun day yesterday!

Right at the top of the morning post I talked about our XOM play on the $70 puts at .70 as a play for the inventories and they gave us $1 straight out of the box (up 42%) and I noted in the first Member Alert of the morning that we should take that money and run.  We went back in the XOM puts at 12:33 for .55 and it only took until 1:05 to call them off the table with ANOTHER 63% profit!  Also in that same first alert, I set targets of Dow 8,300 and XOM $69.50 and both finished the day right about there.  Also in the morning post I mentioned our FSLR $185 puts, which again doubled for the day – that's up 300% in 2 days on that one.  The BIDU $230 puts, AMZN $75 puts and DIA puts were all huge winners as well and we played POT all day in member chat with huge gains on that big dip.  I got a great compliment from new member BK who said: "Thanks for the welcoming gift of the POT at a buck – just paid for this month and my membership is not even 24 hours old!"  THAT'S the kind of trading we like!

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Of course that second XOM pick was Members Only, as were our sale of DIA $84 puts that gained a very quick 20%, POT puts that made 71% and another POT play that gained 20%.  We don't usually look to day-trade like this but we're mostly in cash and it's option expiration week so we're having some fun with the low premiums.  We also did longer-term spreads on IYT and YRCW as both got cheap enough for us to dip our toes in and we were a little more bullish into the close (but almost all cash) although  our last play of the day was a gamble on the SNE $25 puts for .35 ahead of their earnings which may be a winner as the earnings were not good at all with Sony reporting a $1Bn loss for F2008, the first loss in 14 years with a $1.7Bn loss in the recent quarter!

As we can see from David Fry's chart, we have some serious upside resistance weighing down on the indexes and there really is nothing wrong with a consolidation between the 50 and 200 DMAs while we wait for those red lines to bottom out (looks like 90 to me).  What chart guys don't account for (no offense Dave) is the movement of the dollar and how it affects the chart lines.  In yesterday's "Planning Ahead" Alert, I noted for members that the Dollar has dropped 7.5% since our March 9th bottom and if we apply that 7.5% to the 50 dmas of our indexes we get:  8,370, S&P 918, Nas 1,695, NYSE 5,587, RUT 476, SOX 256 and TRANQ 1,717.  Of course the dollar tends to change every day but those are the levels we need to retake this week to arrest the slide.

We are certainly not off to a great start this morning as our PPI rose 0.3%, 50% more than "experts" expected. , Jobless claims came in hot at 637,000 (580K expected), up 32,000 from last week with continuing claims at 6.56M, making that magic 9% mark for unemployment.  You would think this would be bad news but I'm not so sure – that's why we went to cash…  I think we will hold our pullback lines of DIA 8,130, S&P 870, Nas 1,700, NYSE 5,500 and RUT 480 but we've already blown it on the Nas and the RUT so we'll be looking for those two to be outperformers today if we expect the market to shake off this bad news like it has all the other bad news since March 9th. 

As expected, the weak dollar led to a big Nikkei sell-off this morning as that market hit the 2.5% rule to the downside.  The Hang Seng dropped another 517 points (3%), which is fantastic for the FXP calls we were discussing in the Weekend Wrap-Up.  Our last straight play (non-hedged) on FXP was the June $12.50s for $3.80 back on the 8th and those have already climbed to $12.95, probably better this morning and we'll be done with those if the US markets rally back over our watch points.  The Shanghai dropped a point but held 300 and that's going to be a critical line as is 12,000 on the Bombay so a VERY big deal tomorrow morning but a foregone conclusion based on what the US markets print at the day's end.

Europe is not helping as they are down over 1% this morning (9am) as new car sales were reported down 12% in April and the BOE said the recovery, if any, would be a slow one.  Gosh, everything was sunshine and lollipops last week – what happened?  Oil fell below my $57.50 target already as the IEA forecasts no pickup in demand in the near future but what's hurting the Euro, helping the dollar and sending money out of EU stocks and over here this morning is a report that the ECB is falling apart as members cannot reach consensus, freezing the bank and unnerving investors. "The unpredictability of the [ECB’s] increasingly public disagreement," said James Nixon, economist with Société Générale in London, "is injecting a lot of uncertainty into the market at a time when it might not be best" to do so."

The magnitude of the economic shock likely underlies the new cacophony of ECB opinions. "The current environment is such that it's unavoidable to have a very large spectrum of views, given the uncertainty about the outlook," said Jacques Cailloux, economist with Royal Bank of Scotland in London.  The public divisions undermine the ECB's longtime goal of presenting a united policy front. Unlike the Federal Reserve and the Bank of England, which vote on decisions and publish minutes showing votes, the ECB makes decisions by consensus and doesn't publish minutes. In the past, Mr. Trichet has stressed that the ECB places a premium on being predictable, while maintaining license to respond quickly if market conditions change.

So oil traders beware if the dollar starts gathering strength but this should not be too bad for gold as not all EU investors will fly to US equities and Asian stocks are looking iffy.  Of course the ECB could come to a decision and make everything better very quickly so it's not a trend I'd want to be trading, just a general observation that our economy may look scary but it's not like there's better places to put money to work.  There is so much cash on the sidelines that regrets missing the last rally that I would be very surprised if we make it below our strong Dow support at 7,900.  Our plan for today is to hope for a nice drop of about 1.25% at which point we'll be dipping into the Buy List to pick up some June plays but I won't be sad to stay in cash into the weekend if we are not presented with any good bargains.

Be careful out there today, if the market goes up too far, we may find ourselves shorting again!