Options Trader: Friday Morning Ideas

by: Philip Davis

Hopefully we can end the week on a high note! We ended last week on a sour note, with our first big pullback in over a month, while this week marked the biggest pullback since, as I mentioned Wednesday, the Dow broke 11,000 back in early August.

Asia was positive across the board other than Pakistan, who can't get it together. Australia, Hong Kong and India set new records on word that China's GDP should grow another 10.5% next year.

China is bringing North Korea back to the table with the U.S. for negotiations (yay), but is refusing to sanction Iran (boo) -- both moves put downward pressure on oil prices (yay)!

Europe, as usual, has no idea what to do ahead of the U.S. open. The ECB left rates alone but made a hawkish statement that should keep the dollar in check.

6 am: We'll see what kind of mood Mrs. Jones is in once she sees the jobs report. There are 125K jobs expected with 4.9% unemployment and, at this point, I think we want to see something a little stronger, rather than weaker.

8:30 am: Well, we got a little of both as the jobs were lighter (92K) but there were huge upward revisions to previous months. September was revised up to 148K from 51K -- why do we even look at this statistic if it can be so inaccurate?

The numbers are truly spectacular considering how many construction jobs were lost!

We held our market levels yesterday (barely), but the SOX and the transports both fell below, so let's just say any index in the red is a bad sign while we need to see the SOX retake 453 and the TRANQ retake 2,567 or it is time for cash once again.

Defying all logic, oil is being pumped up in Europe after trading flat in Asia overnight. We are still watching the $58.56 upside level and, if it sustains a break over that, I don't think I want to hold November puts into the weekend.

Oil is down 10% for the month of October, following a 10% drop in September which followed a 10% drop in August -- I'm not even going to bother discussing how ridiculous it is for energy companies to be near their highs!

It's not just oil -- despite a falling dollar, commodities are simply crashing (actually the dollar is sort of a commodity as well but that just complicates things endlessly). Notice on the upswings, the CPI takes the lead.


What's giving gold its glitter this week is a global loss of confidence in the U.S. dollar owing, in large part, to the $1T China holdings of U.S. currency we discussed as a problem last month (when I thought it would matter!).

How did we get in this mess? Aside from the usual suspects, Fed Pres. Fisher blames bad data collection by the Fed leading them to worry too much about deflation and not enough about the housing bubble.

Speaking of commodities, it seems that crazy Al Gore was right about another thing -- the oceans are in imminent danger of collapsing with 2048 now the date on which you will no longer be able to eat fish! Six more years of laissez-faire capitalism have accelerated the problem by 20 years!

On October 3rd, I accurately predicted the SOX rally stating:

"I am starting to see a lot of quad processor machines and you would think that once the number of processors in a computer catches up to the number of blades in a razor that tech should be hopping again!"

Well, now the reason for recent SOX weakness has become clear, as it seems Gillette has once again leapfrogged Intel by coming out with a 6 blade razor! Gee, and it seems like only yesterday James Kilts announced the Mach 3.

Speaking of the usual suspects, I thought this comparison was a little extreme (and I'm no Bush fan), but I just saw this actual background that Bush is using!


Will all these terrible things matter or will the Rocky economy take its licking and keep on ticking (or is that the Timex economy)?

I've made my bet on a little Nasdaq bounce this morning but I'm not going to ride out a dip. Electronic Arts Inc. (ERTS) showed some real strength in the electronic sector which indicates that people want more power.

The VIX is coming on strong, up 10% for the week. If you scroll down to the weekly chart you will see how jumpy things are getting. We need a real change in sentiment because you don't want the barrel of the trend gun pointing down when this thing decides to explode!

Unless we get a good turn in the market, I will spend today getting back to cash as the risks currently outweigh the potential rewards!

That being said, I strongly feel the risks far outweigh the rewards for owners of BP PLC (NYSE:BP) stock and, providing oil holds my $58.56 mark, I will be adding the Dec $65 puts for .90.

Microsoft Corp.'s (NASDAQ:MSFT) year-old XBox 360 accounted for 21% of sales vs. 35% on the 6-year old PS2 platform.

We discussed Whole Foods Market Inc. (WFMI) last night and I'm not going to chase it; my opinion hasn't changed since we first shorted it last November.

As we suspected, Qualcomm Inc. (NASDAQ:QCOM) had nice earnings but not nice enough for worried investors.

Be careful out there today -- it looks good (and unfortunately may give oil stocks a boost) but we need to see if the giddiness lasts through lunch!

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