Options Trader: Wednesday Morning Ideas

by: Philip Davis

Happy Turkey Day! The market is certainly no turkey as we race to new highs to close out the week.

Asia had good news/bad news with Japan's economy much slower than expected but that means the BOJ won't be raising rates so the Nikkei went up 180 points while the Hang Seng shot up 242 to a new record (not on this chart yet) of 19,250.79.

Do not underestimate that .79 -- it shows that they mean it!

My January choice for International Market of the Year, the BSE, is still ahead (up 40%) and it is doubtful they will be caught by 12/31 but next year is a whole new ballgame!

Here's a very good article on Chinese growth and the widening income gap there. I think they fail to take into account the millions of young people who have left the farms and joined the workforce that is skewing the results but the figures are very, very interesting. This is why I'm teaching my daughters Mandarin!

Europe is up nicely ahead of our open with the FTSE making another run at 6,250, which it needs to take out next week if we are to get globally serious about a rally. The DAX is well beyond serious as it tackles the 6,500 barrier with a 3rd consecutive record high.

FTSE Chart 22 11 06 Dax Chart 22 11 06

Russia (kind of Europe) is raising the ultra-low natural gas prices its own people have benefited from as they are (surprise) wasting it! Russia's 143M people consume 244% more gas than Europe's other billion people (.pdf) -- sure it's cold but turn the thermostat down a notch Boris! Perhaps Putin can get on TV in a sweater and... no that didn't work well for Carter.

I don't even want to look down today, I'm going to keep a positive mental attitude about the markets but I will be cashing out ahead of the weekend on any weakness as I will just sleep better with more off the table.

Bear in mind what a great show of confidence it is if the markets are willing to go into a 2 day break at all-time highs!

  • The Dow will test 12,350 but anything over 12,300 is still very nice.
  • The S&P has drawn the line at 1,400 so let's keep it there.
  • The NYSE is just a few points shy of a new high and closing above 8,925 would be great.
  • The Nasdaq is over 2,450 and needs to stay there.

If we are to have any trouble it will come from the SOX but I'm pretty sure the Dell Inc. (NASDAQ:DELL) numbers put that to bed. Let's hope for a sharp rebound back over 490 and I will take a rejection very badly at this point.

Oil needs to behave itself for the transports to get some traction but we do have Texas Pacific (major shareholder of UAL Corp. (UAUA)) making a 20% premium bid to take Qantas private for $8.5B -- yet another boost for the aircraft industry!

Let's look for TRANQ to retake 2,700 -- the robust mobile phone shipment news is also great news for United Parcel Service (NYSE:UPS), who needed a reason to break $80. Dec $80s are a good gamble at .80 with a tight .15 stop as you don't want it if it moves down!

Don't forget that next week's retail numbers can boost or decimate the markets so be ready for either!

Oil can also wreck havoc if it keeps going up but, as platinum traders will learn today, a spike is not a trend!

As I said in yesterday's comments, as platinum tested its all-time high, "Copper is up with gold which is up with platinum, which is up for the totally artificial reason of a false demand created by an ETF (which I will call the idiot's ETF as buying an illiquid commodity like that through an ETF is a guaranteed loser)."

Will yesterday's oil spike become a trend or was it just another opportunity for pumpers to seize on the thinnest of news stories (Alaska weather) to raise prices? So what if BP PLC (NYSE:BP) won't ship 700Kb, OPEC just cut 1.2M, that's still 500Kb of excess capacity and they are telling us that's still not enough of a cut to "maintain price stability."

Let's see if $59.17 starts to act more like a floor than a ceiling but oil already failed my Monday target of $60.69 ahead of the inventory. I will be happy just to go into the weekend below there!

Also on Monday I said "Gold needs to break $630 and must hold $625 to be taken seriously." No change there. We'll see if gold follows platinum down if it falls below 1,140 (death cross 50 DMA).

With a BOJ rate hike out of the picture the yen will fall. I'm not sure about the dollar, but the Euro should be through the roof! China needs to step in and save us again or they may face some real issues if the dollar goes back below 85.

Just after we heard how the housing slump is over, mortgage applications fell another 4% last week and I am starting to seriously doubt the data-gathering skills of -- pretty much everybody!

The White House forecast slower growth and rising inflation (ie. stagflation) next year but I think they're just in a bad mood after being thrown out of power!


No call plays will be taken if we fall below our marks but I'm still thinking positive for today!

I love DELL analysts -- they are so wrong they are looking for something wrong when there isn't! Every one on CNBC has a reason that earnings are not as good as you think. These guys just don't get it: the company slashed prices to clear out inventory ahead of the Vista intro and now has a warehouse full of new, expensive machines ready to ship. Like Motorola Inc. (MOT), great companies can see past a single quarter and plan for the future!

That makes it momentum day for the NASDAQ 100 Trust Shares ETF (QQQQ) $45s for .45- as long as the SOX are moving up and Google Inc. (NASDAQ:GOOG), Apple Computer Inc. (NASDAQ:AAPL) and Motorola Inc. (MOT) are positive, we should be in great shape!

The Caterpillar Inc. (NYSE:CAT) came back again yesterday and today announces they expect China sales to quadruple by 2010 to $4b! That puts them way ahead of current projections and should be great for our Jan '09 $60s. Last month I liked the Dec $60s for $3.50 but we got out of them on weakness, they are now $2.75 and a real bargain.

I hate to even mention an oil put, but Schlumberger Ltd. (NYSE:SLB) has topped out at $66 3 times this month so it's an easy stop ($66.50) and I like the $65 puts for $1.65. Only if oil stays below $60 of course.

Tidewater Inc. (NYSE:TDW) has a similar problem at $53.50 and the $55 puts at $2.70 are a short with a $1 premium.

McDermott International (NYSE:MDR) has trouble with $50 and the $50 puts are $2 as a possible momentum play if we can get a good price into inventory. We strictly follow the Valero Rule on all of these oil plays!

MGM Mirage (NYSE:MGM) is going nuts this morning as Tracinda makes an offer for 15M shares at $55, a $6 premium to yesterday's close. That's it for the Jan $37.50s, currently $11.70 (up 297%) as 500% is just way too much to make! I'm taking 60% off the table and selling the $55 calls against for an extra couple of bucks -- they can call me away if they want to at that price!

I found a very interesting play. Take the Phelps Dodge Corp. (PD) Jan '08 $120 puts for $7.90 and sell the Dec $120 puts for $6.60, not a bad first month's return and this deal is nowhere near done.

Starbucks Corp. (NASDAQ:SBUX) $37.50s have an attractive entry at .65 if the markets stay positive (we last sold at $1.10).

Freeport-McMoRan Copper & Gold Inc.(NYSE:FCX) is tempting again but not if BHP Billiton Limited (NYSE:BHP) also goes up on the rumor (because that might make it true) and not if copper keeps advancing as it might on those CAT projections despite the weakness in Japan (nobody believes anything our own government says anymore anyway).

This will be my last post before the holiday as I'm travelling this weekend.

I hope you have a very happy Thanksgiving, I'll be checking in with some light reading but, generally, this is my big family weekend so let's just go out and have some fun!

Have a very happy holiday,

- Phil

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