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This will be a tough one.

The economy is looking scary and we have no resolution in Iran (or anywhere else for that matter) so everyone is taking a big step back. Without new leadership it will be hard for the market to get back in gear.

Housing is damaged as Bob Toll used the word "Hard Landing" but I disagree. Housing prices from 2000 to 2004.5 grew at an average of 4% per year. From mid 2004 through January housing prices grew at a 10% rate. Now we see prices pulling back 5%, but it is 5% from a ridiculous spike that added 15% to the price of housing in just 18 months.

If a stock pulled back 5% after a 15% gain you wouldn't jump out the window would you? We are 6 months into a 5% drop in housing and still have another 15% of overpricing (pricing above the 3.5% normal increase this decade) to wash out before we can get back on track. If the Fed insists on tightening we may get a sharper correction than we are bargaining for but, either way, either prices have to come down or sales will stagnate at this level (much like what is happening to oil).

This is not a hard landing, just a correction to the norm. The Fed came back with a vengeance yesterday saying all sorts of scary things so let's get ready to cut our losses on the builders and just watch for a while. The inventory report is out later but I will be looking to take advantage of an uptick to cash out of this too volatile sector.

If you don't want to dump current positions right away you can balance by shorting KBH, who are double trouble as the first builder under options scrutiny regarding suspicious grants made to the CEO himself. Sept $40 puts are .75.

Watching for a while may be the way to go with the markets on the whole. If I'm right about oil we may get a pretty steep decline there that will hold back the broader markets

Asia was down slightly on the prospects of additional Fed tightening slowing the US economy while Europe is also drifting down despite huge earnings from Nestle.

We are still watching our Monday levels and we didn't expect more than consolidation for the first half of the week so more of the same is no reason to panic. Remember that a lot of people missed a huge rally last week and they are paying PR people a huge amount of money to convince you to dump your shares!

Oil is still trending down but is still being saved at 2:20 every day by US pumpers. Yesterday's action was very funny as someone suckered the buyers of USO by dumping 100,000 shares into the uptick which exhausted the "rally" causing the ETF to close down half a point for the day. Offers dried up in the overnights (I hope it wasn't something I said!) and it will be interesting to see how it performs today.

Gold is flat but I expect Fed fears and a stronger dollar to push it back below $630 today, copper may follow suit so let's keep an eye on PD, RTP and PCU.

We are back to watching the SOX, although NSM gave a very poor outlook and there will be a lot of pressure there today but with mining and the oil sector in decline, either Semis or TRANQ need to take the lead. Transports need to retake 2,400 with some authority and have no excuse not to if oil goes below $72. The SOX will turn consolidation into decline if they can't get back over 440 very soon.

Very little to buy today until the market shows us some willingness to move up. Existing home sales are forecast to drop another point and I think it will be a little stronger than expected but the Fed comments are killing what should have been a nice bounce for the week in that sector.

Oil inventories are predicting a 2.2M barrel draw but even that isn't a very big number in light of the BP pipeline shutdown. Anything less than that will be a huge concern for oil bulls. Be careful with Valero today as they do have a level of margin improvement as prices decline - it's demand that will drive that particular stock down.

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As long as Apple holds up my faith in the markets remains strong. SNDK announced a "better" cheaper MP3 player and went nowhere while Apple fully recovered from Monday's dip.

Still there should be no call buying if the S&P can't retake 1,300 and that will be tough with declining oil stocks.

WY should have a little more momentum today as the new venture with DTC leaves them in control and with an extra $1.3Bn in cash (10% of the market cap). You can tell it's an excellent deal as both companies did very well yesterday. Effectively WYE is taking over DTC for the cost of 45% of its synergistic divisions and DTC is paying them for the honor!

MSFT is throwing a sale for those of you who missed the explosion last week and the Oct $27.50s are just .20 if you like to gamble. I'm hoping for a little more pullback to pick up the Oct $25s for $1.10 or less but only if Apple and the SOX are holding up.

TXN is also giving it away, down a dollar in the last 3 days. NSM may take it down even further but I will be liking the Oct $32.50s if they can be had for $1 or less (30% down).

Keep an eye on GLW to see if TXN has legs. I am waiting for GLW to pullback and I am kicking myself for not picking up one of my favorite stocks at $18.

I thought FMD would pull back on options but now it looks like the expiration date was just holding it back. March $60s are the sensible play at $3.20 and you can sell the December $60s for $1.70 for a nice spread. The $55s are risky at .75 but a bargain compared to the equidistant $50 puts at $1.25.

Remember HPQ? You know, blowout earning, raised guidance firing on all cylinders... Well the $35s have dropped 1/3 to $1 - this is another on to take if tech doesn't fall apart.

Can you really get an XOM $70 put for $1.05? I feel like a kid in a candy store on this one! Of course give up if XOM hits $70.25 for more than 5 minutes but what a ride down we could have...

I'm not missing the rails again. Let's keep an eye on BNI Oct $70s for $2, especially if BTU holds up.

The CKR guy is very proud to be clogging your arteries with giant burgers and says he thinks they are benefiting from people "scaling down" their meal choices. This logic appeals to me and the $15s are appealing at .45.

I'm out of UNH as it had trouble with $50 last month and I don't want to push it. Perhaps we will reenter if it holds $48 on a pullback.

AMZN is another one I am watching. This video download thing could be big but may take time to get people's attention (notice this is yet another story involving MSFT technology as a defacto standard).

SUNW $5s for .10 are my gamble of the day, it's a silly trade and I'm going to be out at .20 for sure!

Source: Options Trader: Wednesday Morning Ideas