Wheee, being bullish is fun!
We're still not great at it as we shorted a few toppy-looking calls yesterday (WFMI, QLD, SPY and POT) but that was a normal offset to bullish plays on SO, ERX, VZ, RIMM, BMY, EMC, AAPL, TXN and T. Of course, we're also playing our bullish Watch List, which still has plenty of laggards that we're picking up. SRS was irresistible as they fell below $9.50 again but clearly we tipped bullish and all those bullish plays from last week should start bearing some fruit as well. The best thing about being a bull is – the markets went up for no reason on low volume and we were happy about it – Imagine that!
Of course we are still skeptical because the economy still sucks but it is fun to get a little more bullish while it lasts. Even our too bearish $100KP enjoyed yesterday's action, finishing the day $101,364. That won't last if we keep going higher and I'll be looking for some bullish plays to officially add there if we hold our levels today (we didn't yesterday).
AAPL is going to be a huge winner for us this morning. We've been selling Jan $165 and $170 puts for weeks as our key way to play earnings (collecting between $5 and $7) and yesterday, in Member Chat, I suggested selling the $185 puts for $7 as well as the April $180/200 bull call spread, also at $7. It was my position that you would be better off putting $2,000 into either of those plays than you would be spending $18,750 to buy 100 shares of the stock ahead of earnings. It will be interesting to see which position fares better today.
In other earnings fun, we are strategically taking well-hedged earnings plays. ZION was a ratio backspread, buying 4 Apr $21 calls for $2.10 and selling 6 Dec $19 calls for $1.55 in a bearish play on their earnings. Looking good so far. BSX was also played for a miss, selling an even amount of Nov $10s against the Feb $11s, both at .65 and we went bullish on TXN, buying 6 Jan $25s for .82 and selling just 4 Nov $24s for .70 as we expected good but not great earnings there. We'll see how those do today but they're all looking like winners in pre-market. The nice thing about plays like this is the are fairly low-risk and not capital intensive and you can often close out your winners the next day and roll the capital along to the next opportunity.
As we can see from David Fry's S&P Chart, we are slogging through resistance zones and the nice earnings beats this morning from Dow components CAT (10x beat!) DD, KO, PFE and UTX had better give us the fuel to get over the top or I will be back to thinking we are too toppy. CAT earned .64 per share vs. .06 expected in the consensus of the 23 clueless analysts who follow them (highest estimate was .27). That aready puts them .30 over the year's target earnings of $1.49 with a quarter still to go and you can see why CAT was a staple of our buy lists when they were down around $30!
CAT is, of course, the poster child for the new measure of corporate success in America. They dramatically cut production and laid off thousands of workers and then benefited from Global stimulus, which boosted demand from developing countries such as China and Brazil, while a weaker dollar makes the company's products less expensive in overseas markets and rising commodity prices boost that sector and keep their customers digging. Falling steel prices were also a huge help to CAT this year as the company also beat March expectations by 875% and June expectations by 227%, proving the theory that some analysts never learn…
Is this really and economic recovery? Declining dollars allowing foreign stimulus programs to afford more digging equipment for make-work programs while CAT slashes costs at home and shuts down long-term production… UTX had similar benefits while DD, KO and PFE all had huge benefits from the exchange rates so forgive me if I don't run around screaming BUYBUYBUY despite all this "good" news.
Speaking of good news, the MSM was once again made fools of by the "Yes Men," who like to hold fake press conferences to announce silly things. In this case, the silly thing was that the US Chamber of Commerce has finally gotten real and decided global warming may be a problem. The funny thing is that several reporters actually believed the CoC was capable of looking at the big picture, even after a real CoC guy busted into the conference and declared it a fake. That guy then refused to answer questions about the Chamber's stance on global warming as he was only authorized to call the first guy a liar and they would have to confer at next year's conference (hopefully not held in the Maldives, who are already holding underwater cabinet meetings to call attention to the fact that their nation is drowning).
But we are not here to worry about global warming, we are here to celebrate the bull market and ignore bad news. We did get good news this morning from the ICSC Retail Sales Report, which shows a 0.2% improvement from last week and a whopping 2.8% improvement from last year, when the market was crashing hard and nobody was in much of a shopping mood. Still, this is the first year over year improvement since August of 2008 and retailers are indeed posting better-than-expected July-Sept numbers. Of course, most of this stuff is getting bought on sale and the Sept PPI was down a shocking 0.6%, a major turn-down from last month's +1.7% or the -0.2% expected by the experts. This drop was so stiff that it even dragged the core PPI down 0.1% from +0.2% last month.
Asia was up about 1% last night and Europe is flatlining into our open, which is surprisingly weak on such good earnings. The US pre-markets aren't as excited as you may think even though oil is barreling up to $80, gold is at $1,065 and copper is $2.98 as the dollar hits a new low against the pound ($1.65) and hovers around $1.50 to the Euro while fetching just 90.3 Yen. Surely we haven't run out of exporters already to celebrate, have we? This evening we'll hear from ISRG, SNDK, STX, STM and TUP, all should benefit from the low dollar and tomorrow is APD, BA, LLY, FCX, GENZ, MCD, NOC, SWK and even USG who should do well under similar conditions.
So nothing too likely to end this party today, other than the sheer weight of the rally as we approach critical levels of Dow 10,200, S&P 1,100, Nasdaq 2,200, NYSE 7,250 and Russell 623. We don't need those, we're happy to stay more bullish as long as 3 of our 5 indexes are over Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 but it sure would be nice to see the SOX over 338 and the Transports over 1,989 so we can get a little more aggressive on the long side.
Until then, let's be careful out there…
