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I am not interested in a rally with oil back at $63.

At some point the Fed will come back into play and the idea that bond pricing indicates a lack of inflation is a fallacy. There is too much money around – that is what is keeping rates down, not low inflation. This misconception on the part of pretty much every analyst I hear is really starting to bother me (so more about this on the weekend).

Holy cow! We talked about the end of M3 tracking and what it would mean for the Dollar way back at the beginning of the year and so far, all my crazy theories are right on track! Oh yes, I said I would wait for the weekend – consider that a teaser!

The Nikkei broke back over 16,000 and is back to being about 30% ahead of the major indices and 15% ahead of the NYSE, which has been our leader since April.
Chart here.

Like us, Asia is having a commodity based rally that is nothing to write home about. An early warning sign for us was Taiwan, who settled their monthly futures yesterday and dropped a point.

Europe is up this morning although Italy is having problems with debt. "If you have a positive surprise on the tax side and at the same time a negative surprise on the deficit, it means that the fundamental problem is really quite worrying," says Stephane Deo, an economist at UBS in London. This is typical British understatement for: Ahhhhhhhh!!!

What do we care what’s happening in the world when the Dow is closing in on 17,000? That’s right, we are all being dutifully distracted by the 30-company index of the Dow with is used by pumpers as a pretty, dangling ball of string to distract investors from what is really going on in the markets.

It also does a great job of distracting CNBC who did not talk about a criminally negligent 6% downward revision in new home sales and a pathetic durable goods report in favor of discussing what kind of party outfits they will wear for Dow 11,700. So it’s 11,700 or (literally) bust on the Dow but, as long as we keep watching these 30 companies to the exclusion of the other 8,500, everything should be fine!

The S&P tracks 500 companies and got some serious resistance at 1,340 but if it holds 1,325 for the week it will be very impressive. I still will be waiting for Tuesday to get my “better late than never” rally cap on as I am gravely concerned about market manipulation heading into the EOQ.

Speaking of manipulating the markets – why has this article disappeared? Don’t worry, our friends at Google keep extensive files!

The NYSE is nowhere near its May high of 8,651 so we really need to see 8.500 here and certainly nothing below 8,400! The Russell (another real, broad index) is also tracking far below its May highs and we should watch the 740 level very carefully with 725 being the danger zone.

The Nasdaq had little trouble reaching 2,300 in January and spent the first 5 months of the year over 2,250 so I’m not sure what all the excitement is about as we finally make it back to last December’s levels. We will know next week whether the Dow is reasserting itself as a leading indicator or whether it is a convenient tool for manipulators to fool you into taking a lot of stocks off their hands.

Also, you know that inflation thing everyone keeps talking about. These "new highs" everyone is looking for are 5 years old - oil was $20 a barrel then, gold was $260, a cup of coffee was $1 - shouldn't we expect more from our stocks than even?

Buying a stock like Boeing (NYSE:BA), Intel (NASDAQ:INTC) or IBM (NYSE:IBM) gives you a lot of bang for your manipulative dollar as you affect several indices at once. Exxon Mobil (NYSE:XOM) boosts the Dow and the whole energy sector but if no one is buying the Transports or the SOX – what is really happening here?

In comments yesterday I could feel the doji forming in the Vix and I said “VIX warming up, sounds like an engine starting - couple of little sputters then - Voom!” This is, of course, just one man’s opinion!

In the “Move along people – nothing to see here” category, steel is piling up in inventories like, well like oil! Inventories of steel are at the highest level since Jan 2005 with a 3 month supply on hand and, while it is nowhere near as stocked up as housing (most since 1985) or oil (most since 2001) it just seems to me that steel is used for something or other and might be some kind of economic indicator…

Gas inventories should be interesting today with the estimates coming in for a 86Bcf build, a figure I feel is way low for reasons we discussed. Oil is holding $63 in pre-market trading and I’d really like to meet the people who felt they just had to buy it up 5% since Monday but I think they may be meeting with Congress first! Let’s see if crude can hold $62 today (assuming I’m right about gas) and anything North of $63 will just drive me to cash as it will take me the weekend to ponder such a move.

Speaking of meeting with Congress - HP (NYSE:HPQ) pays a visit today!

Gold will test the $600 mark today but this is another good proxy for manipulating the mining sector as the downside risk is slim and you get a lot of bang for your pumping bucks.

I would love to say I was wrong and we should party like it’s 1999 but I think I was right and we should party like it’s 1999, except for not being idiots and leaving it all the table like we did thar time!

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The Google (NASDAQ:GOOG) $350 put is a fun gamble at $3.35 or less at it is likely to go up in price as we approach earnings, even if Google stays flat. It can be taken as a spread with the $460 call at $3.60, which is in a similar situation but, with both, I’d really rather buy just a few initially and add to either side as gyrations take them under $3 and halving out at $5 on either side.

Yahoo (NASDAQ:YHOO) is just irresistible to my bullish side with the Nov $25s at $1.40 but this is a double down for me on two other Yahoo trades that have lost 50% since my blogs started being published there. Coincidence – I think not!

Rumor has it that Tracinda is buying 6M more shares in the Titanic! That crazy old guy just loves GM – lord bless him, he’s hitting my $33 target so let’s pick up a few $32.50 puts for under $1 if we can.

Be careful out there today!

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Source: Options Trader: Thursday Morning Ideas