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I'm not going to be down on the economy! In an attempt to go with the flow, I won't mention articles like this, which indicate that service sector activity is the weakest since April 2003. And I certainly won't point out that, aside from saying we are facing an economic crisis of biblical proportions, Bernanke also said A) Inflation remains a concern, B) Growth is slowing, and C) Rate cuts are unlikely.

Rather we will focus on both Mr. Bernanke and Fed Gov Kohn who both said about housing that there is "little evidence" of a spillover to the rest of the economy.

Finally, leading economists embrace the Consolation Prize Theory!

So happy days are here again -- let's party like it's 1999!

Asia is partying like its 1989 (think we can get them to buy all our real estate again?) with the Nikkei flying up 366 points -- now that's a rally! Nissan rose 3.5% in relief that they will not be used as a life preserver for GM. Remember that Tracinda already owns 56M shares of GM at $31, so talking about buying, or even actually buying, 12M shares in order to keep prices above $32 makes a lot of sense for them.

Europe is having a quiet, up-another-half-percent party, the type you would expect in all the finer economic zones. The ECB is expected to raise rates, and we will all keep our heads firmly in the sand as that will weaken the dollar, raise 10 year rates, and probably boost commodities.

Ryanair violated one of Warren Buffet's primary rules of investing: "Never Buy an Airline" with an offer to take over Aer Lingus for $1.88B -- should be good for our Continental Airlines Corp. (CAL) shares as we get out on rising oil prices.

The Dow is just 150 points away from 12,000, and we'll see how the industrials respond to oil poking back above $60 today. The last time oil bounced back over $60 was January, when the Dow dropped from a nice run to 11,000 all the way back to 10,650. Holding 11,800 or even 11,700 will be impressive, while anything positive is uber bullish!

Obviously, if the S&P takes out 1,350 it's going to be party time, but let's realistically keep an eye on 1,340 for a sign we should tighten up our stops on calls.

The NYSE is asserting itself nicely and we'll see if it holds 8,500, which will keep me bullish regardless of the other indices.

The Nasdaq had a similar breakout after a strong bounce off the 200 DMA and we'd like to see it hold 2,275 but a small SOX rally can take us over 2,300, close to the promised land of sector rotation!

My beloved transports, the index that led my rally call back on 8/23, are facing a critical test at the 200 DMA of 2,550, and we'll see today whether it is low oil prices or a strong economic outlook that got the index moving yesterday.

Those low oil prices are off the board this morning as OPEC starts getting its story straight and calls for the first production cut since 2004. This is to be expected when there is too much oil on the market, but you can't explain that to oil bulls who are ready to party like its July.

They are cutting output because "oil stocks that are running at a 7-year high in top consumer the United States" and say these cuts will come "as soon as possible but the exact date is still being worked out." Wow! I bet McDonald's wishes they could talk up the price of a burger that easily! Needless to say we are salivating over another chance to short these jokers just like we patiently waited for GM to hit $34 again!

We get a real test of our $61.69 retracement level today, hopefully it will hold. Our upside resistance should hold us through the gas inventories at 10:30 and after that, only Valero knows for sure!

Gold should get a bounce off the weakened dollar today, but we'll see if it can track oil and rebound back to $597, the price it was at when oil was $61.69. Anything less will indicate real, long-term weakness in gold.

Moody's says your home will decline 10% in price over the next few years. Is that a tragedy or a relief? I think most people expected worse.

Microsoft says they will take tough steps to stop piracy of its Vista system. So far not shipping it at all has been very effective!

Today's Picks:
I'm certainly not buying any calls if the indices fail our downside numbers, but, if oil falls flat on natural gas inventories today, I think we may get the boost we need to push the markets higher.

  • Eastman Kodak Co. (EK) got my attention again as great numbers came out of Canon in Japan. Earnings are out on the 31st, and I like the Nov $22.50s for $1.
  • Amazon.com Inc. (AMZN) is a retailer, and if J.C. Penney Company Inc. (JCP) and Sears Holdings Corp. (SHLD) keep going up, I like this one into the holiday season. They have very low expectations on earnings and the Nov $35s make sense at $1.35 as long as the stock can hold $32.25.
  • The Home Depot Inc. (HD) is still well off its highs and the Nov $37.50s would be nice to get for $1.20 or less as it consolidates into 11/14 earnings.
  • Walgreen Comp. (WAG) took a huge hit on fear of WMT's pricing stunt, but Wal-Mart can ill afford to keep it up for long as their sales increase was 33% less than expected. I think the long-term result will be pharmacies selling 20% less drugs but getting 30% better prices as they use WMT's structure to leverage their suppliers. The Nov $45s are $1.40 and we can pre-roll the $47.50s for .55.
  • Fannie Mae (FNM) is far behind Freddie Mac (FRE) and expectations are low, so I like the Nov $60s for .50.
  • Constellation Brands Inc. (STZ) had poor outlook, which makes me worry about Molson Coors Brewing Co. (TAP). The Nov $70 puts are not bad at $1.85.
  • Alcoa Inc. (AA) kicks off earnings next week, and I'm going to use them as put protection. If the rally is real, they should have much better than expected earnings. Nov $27.50s are .95.
  • Genentech Inc. (DNA) is down for very silly reasons and I'm taking the puts off the table on a .20 trailing stop and holding the calls with earnings coming up next week.
  • No one told LG Phillips LCD Company Ltd. (LPL) there's a tech rally. I shorted these guys in the spring, but I think they've suffered enough to take a small earnings gamble on the $17.50s for .35.

I'm not touching oil until at least 10:45 but we'll be keeping a close eye on the same guys we sold yesterday!

Read all of Phil Davis's articles on Seeking Alpha.

Source: Options Trader: Thursday Morning Ideas