Options Trader: Friday Morning Ideas

by: Philip Davis

Another week we can't wait to get out of.

Once again the market has many reasons to rally with strength from CAT and MSFT but we can expect the focus to be more on DELL's pathetic outlook. We had this discussion back in May on Seeking Alpha and it's interesting to reread the comments by myself and David Jackson in light of today's report.

While Dell is keeping revenues afloat, they are doing so by pursuing this doomed cost cutting campaign which has cut earnings by a third. Of course Dell is blaming a "slowing commercial market worldwide" which is interesting since IBM, Apple and Microsoft aren't seeing it, but the market is ready to embrace any bad news and we could be in for another bad day in tech land.

Look for Dell to explore its 9/11 low of $18 (was $42 last year) and for AMD to be right behind them in the downhill challenge. I'm linking to this Forbes article not so much for its insight into the situation but because it has the coolest little pop-up Steve Forbes ad I've ever seen.

I don't see how stocks can do much today with the war heating up and oil back to $75ish (due to the contract rollover) but we are back to where we were on Wednesday where it is possible to have a big "rally" without coming anywhere near breaking significant technicals.

Let's keep our eye on SAP, who had revenue growth of 16% and raised guidance but will likely sell down as the p/e is 29. If the market doesn't want this stock, then we are likely no where near done with a market adjustment.

The Chinese Central Bank increased the amount of cash banks must hold in reserve in an effort to tighten the money supply and put a little break on the economy there before they suck up all of the world's resources. It's a very small move and will do little, but has a psychological impact that should push the dollar down a bit.

Once again it will be very tempting to short oil into the weekend, especially if we get a good late day pump. With options expiring, the premiums will be high for August puts so I will be looking at XOM Aug $65 puts and CVX Aug $65 puts if they get close to $1.50.

I'm not touching gold as I can't believe how it keeps getting chopped down by the US traders, but if it holds $630 on Monday I will be looking for $650 next week.

BRCD wins the pool for the first issued criminal charges for back dating stock options with 3 indictments, and this as much as anything will hold techs down today.

I'm watching from the sidelines today as this looks like it will be a messy one but I may pick up a few badly damaged tech picks at the end of the day if I get home in time and the Nasdaq is down another 20. It's options expiration day and anything can happen so don't read much into market movement today.

65% of the companies reporting so far have beat estimates with just 13% (vs. usual 20%) missing - I still maintain the underlying fundamentals are a lot stronger than the mood of the market.

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Penny stock alert! SMVD (a company I dumped out of when it went crazy to $7 last fall) is looking good again at $1.45 as they just raised an additional $9M in financing and signed up BrandsMart to push their excellent service. I also like their new web site. If you have a compatible phone (and all the new ones are) you can watch CNBC and Bloomberg anytime. There was a huge demand for the private placement which dilutes the stock by 25% and leaves another 20% in $2.50 warrants on the table but the stock held steady and should get a relief rally now that it is done.

CAT posted huge numbers with net profit up 38% and raised guidance but might meet enough resistance at the 50 dma of $72 to give us a chance to grab the Aug $75s before they go over $1.25.

HAL posted a 51% rise in net profits - no surprise there, perhaps a little low but SLB knocked it out of the park in earnings and outlook.

BNI reports next week and I like their chances but the premiums are out of control.

ACI had a great quarter and we might be able to catch the $35s as a momentum play this morning but keep in mind they expire in 6 hours!