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Retail sales numbers indicated that consumers have indeed pulled back on spending, although there was still a .2% increase after July’s blistering 1.4% rise, but I’ve given up on trying to explain statistics to economists so I’m just doing to sell with everyone else!

Also the numbers include a huge drop in gas station sales on cheaper gas, so I will be rebuying our retail picks on any silly dips.

A lot of the sell-off was attributed to slow auto sales—no surprise there. On the whole, the entire report was a 100% beat of analysts prediction of a .1% decline. So I was right, but THEY are determined to spin this as a bad thing anyway.

Do we go up or do we pull back? Frankly, with just 2 days to options expiration, you can’t read anything into any movement we get. We are also coming into the end of the quarter, so I am going to be a lot more cautious with the oil plays, as funds just can’t afford to let the oil sector fall any further.

Be on the lookout for shenanigans, like yesterday’s Pfizer Inc. (NYSE:PFE) sell-off—which is a classic example of the “Max Pain” theory that stocks head to the point at which the most options expire worthless. $27.50 neatly wipes out 79,000 calls that were in the money, while there will be over 150,000 puts wiped out with less than 600 puts in the money. Kind of makes you wonder how we ever pick a winner...

Phelps Dodge Corp.'s (PD) max pain is $90. The stock is at $86.48, and the $85 call is $2.05, a .57 premium to own this volatile stock for 2 days. The long range chart says it’s heading down, the short range chart says it’s going down, and Max Pain says it’s going up $4. I think that, coupled with a little firming in the price of copper, makes it a good trade.

SanDisk Corp. (NASDAQ:SNDK) is another adherent to Max Pain. I was reminded yesterday that I stopped trading it because it was often manipulated into expiration. With the stock at $57.97 and the $57.50 puts at .50 and over $20 in movement since the last expiration, it will be interesting to see how it fares around the Max Pain target of $52.50. I don’t like the SNDK trade as much because of strong semi demand, but if the SOX take a dive, why not take a small gamble?

Oh yes, the stock market…

My feeling on the markets today is best summed up by the great philosopher W.O.P.R, who said, “Strange game, the only winning move is to not to play.”

Asia was up strongly. The Hang Seng should be ignored, as the pullback there was the result of traders moving money in anticipation of a spate of IPO’s that are scheduled over the next 10 days. China’s Industrial and Commercial Bank (how would you like that franchise?) will IPO next month for $19b, the world’s largest IPO.

Despite “a slowdown in the US, EU and Japan” the IMF forecast 5% global growth this year and next (it must be a very big world out there).

Europe is up a bit as they have decided that they are in the world, but don’t expect the U.S. traders to buy that muck as option shenanigans are likely to trump fundamentals for the rest of the week.

We should be off to the races as my predictions on CPI (mild), and Retail Sales (better than expected), have both been confirmed. But we may have to wait for next week to make our real moves. I’m going to be as guilty as any trader by taking most of my profits off the table today.

If it’s a real rally, we have all the time in the world to get back in!

All the Dow needs to do is hold 11,500 to make me very happy. The S&P can hopefully establish 1,310 as a new floor and the NYSE needs to break 8,400 to show that it is serious. The Nasdaq broke above the inverted 200 DMA at 2,222, and just holding that into the weekend will be a huge triumph:

The transports are in a squeeze though between the inverted 50 and 200 DMA, so let’s again look to them for directional leadership. The airlines may be getting a little played out, and now the rails need to catch up with the shippers staying the course:

I hate to say it but the SOX could drop back to 450 (-3%) and would still be in great shape, so be careful in that sector!

Remember, you manipulate the oil sector by manipulating the price of oil, so nothing is more important than the fundamental defying motion of the NYMEX where we have the Costco Effect in play.

The Costco Effect is that thing that happens when your spouse first discovers the wonders of a wholesale outlet and comes home with a year’s worth of toilet paper because it was on cheap. You stack it up in your garage, and now toilet paper takes up about $1,000 worth of house space (but nobody thinks this way). A week later your spouse comes home with even more toilet paper “because it was on sale.”

This is what’s happening with oil at the moment. We are bursting at the seams with oil that speculators bought like crazy at $70, pushing it into every nook and cranny we could find. Suddenly it goes “on sale” at $64 and speculators rush out to buy more. At some point they just have to stop...

An economist would call it a sensible-dollar-cost-averaging approach, but that it doesn’t take into account physical constraints like the one Zman and I have pointed out we are rapidly approaching in natural gas.

Nonetheless, I’m out of my oil positions since Tuesday other than yesterday’s ExxonMobil Corp. (NYSE:XOM) puts, which I couldn’t resist, but I’m going to wait until Friday or Monday before making any more bets there. Here is an interesting take on oil supply:

Gold still has its work cut out for it, but we may get a little dollar boost into the weekend.
Again I am selling for the most part, not buying, as I think we made quite enough money for the week and I need a little rest, so take these picks with a big grain of salt. If they pull back a lot, then I will, like any good Costco shopper, put some in my cart—even though I really don’t need them!

Today's Picks:

  • Speaking of raging economies, our pals at Caterpillar Inc. (NYSE:CAT) signed a pact with China (heard of them?) to develop a remanufacturing industry over there. They also announced the opening of the first unit in Shanghai already, so we are off to the races! The Oct $70s for $1.10 make a nice play but be careful into Friday.
  • I’m liking eBay Inc. (NASDAQ:EBAY) if the Nasdaq holds up today. I’m kind of hoping for a pullback to $27.50 but I will take a few Oct $30s for .90 just to get started.
  • We’ll see how General Electric Co. (NYSE:GE) stands up to a UBS downgrade, but I’m probably out of them early as news that they sold Apollo Management for $3.8b just isn’t that exciting.
  • Bear Stearns Companies Inc. (NYSE:BSC) came in as predicted but I will be taking that off the table as well
  • Apple Computer Inc. (NASDAQ:AAPL) may finally get our long expected pullback as Microsoft Corp. (NASDAQ:MSFT) finally announces its Zune platform. This is likely to be yet another Microsoft dud but fear of Redmond is a powerful thing and AAPL traders may decide to take some profits after a 20% run since last expiration period. The $72.50 puts for .25 make a great momentum play.
  • Speaking of falling stocks. Some idiot bought General Motors Corp. (NYSE:GM) again while we weren’t watching (must be that kooky old man); those $32.50 puts make a fun gamble at .10.
  • Starbucks Corp. (NASDAQ:SBUX) Oct $35s are cheap enough at .50 to play the drop in coffee prices (not theirs, the commodity).