Seeking Alpha
Profile| Send Message|
( followers)  
Hurricane Chris is now tropical storm Chris but there's still a lot of wishing (by silly oil longs) that it may regain strength which could leave some irrationally high oil stocks on the table in early trading.

Asia was amazingly flat today as oil pulled back only slightly in overnight trading while Europe is down as the BOE raised rates to 4.75%, The ECB to 3% and Australia's CB went all the way to 6% (Aussie stocks rose 1.2% on that news). It's hard to imagine that the world bankers aren't on the same page so I expect Fed hiking expectations to rise back over 50% and tomorrow may be a panic as jobs data will indicate very low unemployment putting pressure on wages.

Once again I am loving my cash call - I know my "day trading" isn't usually for one day but we have to catch the waves that are thrown at us as we just don't have the gravity to create our own.

Gravity should take its toll on $75 oil today as it still seems to be the magic number that begins to trigger the dreaded "demand destruction" that is feared by all oil producers support companies alike. As you know from my dogged determination to keep shorting XOM against the market this week, I really feel the sector has gone too far at this point.

Gold will pull back a bit unless there is a real change in war status, let's see if $650 holds up as I am pretty sure $660 is a goner today. The big wild card is North Korea again, who are building missile silos that are aimed right at Japan. It is generally not taught in our schools how much Korea and Japan hate each other but let's just leave it that there is a dispute as to whether Japanese soldiers raped and killed the last Queen of Korea or if they just tortured her and set her on fire.

======================================

I'm not quite sure how to take new home sales numbers - The annual rate is "down" to 1,131,000, off 11% from last year's record pace. It's a huge decline and USUALLY housing declines are great indicators of upcoming recessions (represented by grey bars on graph) but it usually retraces 30% or more.

We had rising rate concerns in the go-go '90s and home sales skyrocketed to levels that were "unsustainable" followed by 9/11 and the great rate drop that pushed us to 50% above what was considered unsustainable. Did builders go to far? Probably - but I see a quick and orderly pullback in construction owing to the reams of data that are available that simply weren't there in our last down cycle (1986-1991).

Another housing factor that I see but I can't find data on is the number of homes that are torn down and rebuilt as we are simply running out of available land in our metro areas. I was just working on a project in Jersey City and, out of 6,800 empty lots in the town of 260,000 that are owned by the city, none are buildable due to size or restrictions. Lots end up in the city's possession due to defaults etc. but this indicates that every square inch of land worth saving has been used.

That means that, at some point in time, the lots owned by the builders will have real value - there simply aren't any others and those that can play the carrying game successfully will come out on top. Take a look at the action on land bank JOE since earnings Tuesday morning:

Sure earnings were off - but they still own most of Florida! Hurricanes or not, that state has 1,000 people a day moving into it. BZH just signed an agreement with JOE to develop 700 of their sites so there is still some interest. I don't recommend JOE at this price (p/e 32) but if they can be valued that highly what does it say about peers like BZH (p/e 4), TOL (5), HOV (4), DHI (5)... In fact this is a whole industry with an average p/e of 4.22! I think a fed pause will run some of these stocks right back to the 6s...

======================================

Speaking of oversold sectors, ABX had blowout numbers (+15% over expectations 500% over last year) as economies of scale from the PDG acquisition finally begin to kick in. They also brillaintly took advantage of dips in gold to buy out a lot of hedged contracts that have been holding back their earnings so look for their earnings to accellerate if gold stays over $600. This is probably the safest long-term gold play of the group.

GG (8/10) is still lagging the group in recovering but the Aug $32.50s are irrational at $1.45. It will be a weird day to buy gold as the commodity price should pull back a bit but ABX earnings will push the other way. Best to hope for a pullback and see how it looks closer to earnings as POG generally trumps earnings.

======================================

No reason to trade today, I'm hoping we don't fall below Tuesday's lows as that would be a very bad sign. To me, Barrick's upbeat production numbers flash an oversupply warning for gold which may trigger a short-term commodity sell-off. If oil breaks back towards $74.50 then we could get a major pullback in the oil sector and the rest of the market is simply just not strong enough to fight it.

All trades are tight stop trades and oil trades should follow the Valero rule to the letter!

CHK has had a great week since I picked it in comments last week but the heat wave is breaking and so will the price of natural gas so I like the $32.50 puts at .55.

ECA has also gone crazy this month and Sept $50 puts could be nice for $1.

BP has a high p/e (12) for a major and took a nice bounce off $73 and the $70 puts are just .50 and I would even pay .75 if it's heading down.

RDS.A is always tricky to trade but the $70 puts at .85 are just so attractive. You can offset half by selling the $65 puts at .40!

Watch TSO, who had a 10% beat today, to guage direction along with the usual suspects.

AAPL struck a huge deal to put IPod docs in Ford, GM and Mazda cars meaning 70% of 2007 US cars will now offer IPod integration. The next step is IPods being used as promotional items and I am sure that deal is already inked with GM. The big question is how much of a discount did Apple pony up in order to sell another 5M IPods a year (my guess, not much). I have been waiting for a pullback since I passed on the Aug $52.50s just before earnings (kick, kick) and we'll have to see how it handles the 200 dma of $66 on today's pullback because that may be as low as it goes!

Source: Options Trader: Thursday Morning Ideas