Options Trader: Tuesday Wrapup

by: Philip Davis

As I said in comments today, if you haven't disconnected your brain and embraced the Meatball Market (where it just doesn't matter) then you are in no way prepared to dive in to the Energizer Market, which keeps going and going and going...

We can have high energy and commodity prices and consumers can spend more than ever before although their home prices are declining and the rates are creeping up. How? That just doesn't matter! If you are asking the question you are just not ready to play...

Volatility is still as close to zero as it's likely to get, and the last big downturns in volatility were long-term buy signals for the markets, more so for Europe than for us:

Dow vs Dax vs Vix 25 10 06

Add the Nikkei on a 5-year chart and you see how far behind we really are!

Dow vs Nikkei 25 10 06

Both Mr. Jones and his pal Dax are still 35% behind the Nikkei. Does that seem right to you? Is Sony better than Apple? Is Komatsu better than CAT? Is Toyota better than GM? OK, forget that last one but you see my point...

We all sell in the same world marketplace. Most of the really cool companies are still in the U.S. -- why are we amazed that we just made an all-time high when the Nikkei has been putting them up for over a year?

As I said back in August, the markets looked ready for a huge run, and I will be the first to admit I chickened out less than halfway through it but, IF we get through this Fed meeting tomorrow unscathed, you just might catch me jumping on the bandwagon as it careens around the mountain pass.

I mentioned a few people who missed the May drop this morning, and, in the interest of fairness I went back to get my own take on that fateful week: The high was reached on May 10th, a day I urged caution ahead of the Fed. On Wednesday night, despite the Dow hitting another high, I was still concerned.

By Thursday morning, with the Dow still at 11,639, I called for a cash out, which triggered that day. By May 15th I was as down on the markets as you can be, comparing them to a roller coaster called Oblivion -- a drop with no bottom in site!

So how does that make me bullish all of a sudden? Confidence!

I CAN spot the turn! I can do it before it's too late, so why worry in advance? It's a silly game, the dice are rigged in the oil companies' favor, and people are rushing into all kinds of stocks like lemmings, regardless of value...

What fun! Let's hit these puppies, but let's remember that it's a game and keep a good sense of humor about it. IF we do make it past this Fed meeting, there's a long, long way to go before we are as stretched as the Nikkei...

Mr. Jones turned in yet another positive day today, with no fear of the Fed in sight, rolling to 12,127 with just a brief visit to the 12,100 line:

The S&P pulled it out at literally the last minute after spending all day in the red, but what a change in sentiment after testing 1,372!

S & P 25 10 06

The NYSE took an early test at 8,700 and decided to finish the day up 13 more points, crossing the 8,750 line at literally the last second!

Rather than worry about the Nasdaq falling .5% and looking weak under the 2,350 line, I'm going to take a page out of Karl Rove's playbook and ask that they simply stop reporting it -- problem solved! The SOX fell another 1%, and if they don't want to play with us we are just going to ignore them too!

The transports bounced nicely off resistance despite rising oil prices as that just don't matter to a transport company (this is a test to make sure you have properly disconnected your brain!), just ask Stifel Nicolaus.

Transport Index 25 10 06

I am not going to be impressed with oil getting pumped up for .50 at close, like I said, we have to accept the fact that they cheat, and take even more pleasure in beating them later. We may have to let the oil sector go for now as Oil Service HOLDRs ETF (NYSEARCA:OIH) is very close to my $135 limit and ExxonMobil Corp. (NYSE:XOM) came within 2 cents of my quitting limit of $70.25.

Exxon 25 10 06

With my XOM Nov $67.50 puts at .70 (down 35%) and the Dec $67.50 puts at $1.10, I'm thinking of adding .40 to roll out another month. The same goes with Valero and the other puts -- it's cheaper than doubling down and buys more time for all the nonsense.

I'll be watching BP PLC (NYSE:BP) closely for sentiment as they had mixed results but gained half a point anyway. Tomorrow we hear from ConocoPhillips (NYSE:COP), Core Laboratories N.V. (NYSE:CLB), EnCana Corp. (NYSE:ECA) and Hess Corp. (NYSE:HES), which should give us a good idea of where the sector is heading. Also, don't forget inventories at 10:30!

Gold went nowhere at $584 as the dollar arrested a sharp drop and ended up down just a hair on the day.


So we are determined to party like it's 1999 (which has to include the total obliviousness that there could possibly be anything wrong -- take drugs if you have to!) but please remember our trading policies and the entry system we discussed on the weekend: Fun is fun but let's just be a little sensible!

  • We said good riddance to the Amazon.com Inc. (NASDAQ:AMZN) in comments, and a good thing too, as that company went crazy after hours on very surprising earnings.
  • I added the Applied Materials Inc. (NASDAQ:AMAT) (11/15) $17 puts for .55 as Texas Instruments Inc.'s (NYSE:TXN) guidance and the SOX weakness made me think they might not get a lot of orders next quarter.
  • We took the Titanium Metals Corp. (TIE) (11/6) Dec $35s for $1.25 as an indirect play on Allegheny Technologies Inc.'s (NYSE:ATI) earnings tomorrow which worked out well as they kept going up all day.
  • We filled Sirius Satellite Radio Inc. (NASDAQ:SIRI) at $3.72
  • The Boeing Co. (NYSE:BA) Jan '08 $90s for $7.30 were added pre earnings with the hopes of turning them into an income producer long-term.
  • I chose to not chase Coach Inc. (NYSE:COH) but to place a bet on Consolation Prize Teammate Tiffany & Co. (NYSE:TIF) (11/29) with the Jan $40s for $1.

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