Options Trader: Monday Wrapup

by: Philip Davis

You call that a pullback? I guess the way this market's been going, not gaining 50 points in a day is some kind of crisis, but I for one appreciate the rest.

With the oil sector pulling back a point and a half you can't be unhappy with even just holding the line today, but the Nasdaq did better than that, posting a 13 point gain led by a surprisingly quick rebound in the SOX.

I'm now calling the Dow Mrs. Jones because, "we've got a thing going on" as this market is just unstoppable! After a quick dip at 12,050, Mrs. J decided she much preferred life uptown and finished down just .03% at 12,086.

The S&P not only held my comfort level at 1,370 but never actually came near it, bouncing off 1,374 like it was a hot plate at 10:15 am and never looking back, despite the heavy drag of the energy sector.

The NYSE also never had any trouble and, as I mentioned, the Nasdaq provided the leadership we love from our tech sector.

We can't get too excited about the SOX bouncing off the 50 DMA, but it sure beats falling below it, and the transports looked very strong climbing back to 2,633, just 7 points short of the October high. Needless to say, transports will be the one to watch tomorrow.

Cramer says to buy oil "Wednesday or Thursday of next week." His logic is that a Democratic election victory (perhaps this is what Bush meant when he said he was going to make the world safe for Democracy?) will cause a sell-off and create a buying opportunity. As long as we get the sell-off I'm happy!

We got a little sell-off in oil today with a $2.39 drop all the way to $58.25 finishing at the low of the day on heavy selling. Remember this is the December contract, so oil is already in far worse shape now than it was last month when the contract was less than 30 days out!

Crude Oil Chart 31 10 06

In a great example of Roach Motel Theory in action, ExxonMobil Corp. (NYSE:XOM) dropped almost a full percentage point on low volume as trapped traders had to chew their own legs off to escape. That left 5M less shares than usual traded on 2 consecutive down days as poor shareholders keep hoping someone will come and bail them out rather than take a loss.

This causes a situation much like the rise in housing inventory as unsold shares pile up while less and less suckers, I mean buyers, come into the market. As I said in comments, XOM sells 50M barrels of oil a day, and a $2 per barrel drop means they lose $100M per day in revenues. Even for mighty mighty Exxon, losing $9B in revenues per quarter has to hurt!

Gold had a decent day but couldn't break that pesky 200 DMA, and the dollar gave it no help as it held flat for the day. Miners in general fared poorly today with flat earnings and rising costs (good for Joy Global Inc. (JOYG)).

Gold Chart 31 10 06

Personal income was up nicely (.5%) in September, but consumer spending lagged far behind, up just .1% -- the smallest gain in 10 months -- but this included the much-less-amount-of-money-they-were-forced-to-spend-on-gas, so take that number with a grain of salt.

Cheney campaigned, oops -- I mean appeared on the Kudlow show, which is nicely summarized here. Contrary to what Mr. Cheney claims, Howard Dean was crystal clear that the Dems feel we will need to maintain a military presence in the Middle East for quite some time, "because of the terrorism concerns that have been created by the war in Iraq."


I hate to toot my own horn but sometimes I can't help it! On October 8th we were discussing the YouTube deal and I said: "I don't think Google would be doing this deal if they didn't have a handle on the copyright issues. Either they think they already have the legal right, or they have some compromise in mind, say limiting TV and film content to 3 minutes. Media outlets pay to have someone see a 3 minute clip of their stuff!"

"Fair use of a song or radio clip is 30 seconds or 20% of a 3 min song. That works out to 4.4 minutes on a half hour show (22 minutes of content) so I think, if push came to shove in the courts, that's where we'd end up."

Well today YouTube pulled off all copyrighted clips that were longer than 5 minutes! How's that for a prediction? (pat, pat)


It was a good day to sit on the sidelines (well mostly). So far, we have no reason to miss any of our calls from last week's purge. A nice consolidation week would be a good thing.

  • In comments we took advantage of slow moving XOM as the rest of the group fell, and we were able to pick up the $70 puts for .75 as late as 1:15, and we cashed out a couple of hours later for $1, a nice 30% gain!
  • Our Energy Select Sector SPDR ETF (NYSEARCA:XLE) puts had a nice first day out of the box with the $55 puts running up to $1.20 (up 33%), and the pre-roll $53 puts already at .50 (up 40%).
  • Humana Inc. (NYSE:HUM) did not go well, canceling our UnitedHealth Group Inc. (NYSE:UNH) trade.
  • Yahoo! Inc. (NASDAQ:YHOO) $27.50s finished at .30 (up 50%) as the stock gained 2.5% for the day. Our longer plays are now looking much, much better!
  • We got our Lowe's Companies Inc. (NYSE:LOW) Dec $32.50s for .45, but it's hard to tell if we still want them.
  • Blue Nile Inc. (NASDAQ:NILE) had a big miss due to option expensing -- revenues were up 27%, beating expectations, but that just doesn't matter if you can't get it to the bottom line!
  • Hydril Co. (HYDL) cut outlook and didn't really impress with earnings.
  • Boeing Buddy™ BE Aerospace Inc. (NASDAQ:BEAV) had a great report, overcoming fears that they would share Airbus' pain.
  • Rackable Systems Inc. (OTCPK:RACK) had a slight miss, but revenues were up 40% and guidance was raised, so all is forgiven with a 7% after-hours gain -- a sign that tech investors are sill coming in.

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