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Wowie, what a great day this was!

A good, solid sell off followed by a recovery on increasing volume - who could ask for anything more? As I predicted on Thursday, we are in another Meatballs Market Rally - where "It Just Doesn’t Matter" and I’m not even going to talk about all the things that don’t matter anymore because they really won’t - if we can get just one more big push this week. We are heading straight for the moon and all we need is some thrust, hopefully from tomorrow’s CPI or possibly the Fed minutes, especially if they are taken as well as Governor Bies’ comments were this morning.

Tonight we will get the BOJ rate decision and we’ll see the reaction to that well before the markets open so we’ll shelve it for tomorrow’s discussion. The story of the day was oil, which dropped $1.32 on the final day of March contract trading. As Zman pointed out this morning, the confluence of plentiful supply, OPEC softness and warmer weather was simply too much to sustain a $59/barrel level.

“The snow that I was beginning to think would be here forever is actually melting, and the oil market appears to be melting with it,” the ubiquitous Phil Flynn, senior analyst at Alaron Trading, told MarketWatch.

The best thing about Tuesday's market rally was that we did it WITHOUT the participation of the commodity sector with the gold and silver index down 1.77% and the oil service sector off 1%. The markets started the morning by testing all my morning hold targets and at 11:07 I made a bullish decision by calling for a dump on our protective DIA puts, down just a nickel and just in time as the rally started in earnest soon after:

Dow tested 12,700 but ended up adding 19 points to finish at 12,786.
• Transports are tearing it up, blowing through 2,950 on a very strong day!
• S&P tested my 1,450 line but finished the day just under 1,460.
NYSE hit my 9,400 target but broke through 9,450 to end the day at another ATH.
Nasdaq retook 2,500 with a vengeance and stayed 5 points above my danger zone!
• SOX took a scary dip to 468 but recovered quickly, still a concern at 474.
• Russell exhibited clear leadership, blowing through my 820 target to 826!

These are some amazing numbers! So much the better as they tested my resistance points too…

US Markets

Our first monthly oil contest is over and it looks like, according to the NYMEX web site, that the final barrel count for March delivery is 41,459,000, represented by 41,459 open contracts. It turns out that I am the winner because I guessed 42M but I will graciously step aside as soon as we see who was the next closest guess. If you think it was you - please let us know as we may have missed one or two (next month there will be a specific place for entries).

We will bid adieu to the March contract with a quick wrap-up of how we traded since last Monday:

• March Open: 41K (-189K) $58.07 (-$1.82)
- 183K contracts traded today.
• April Open: 335K (+108K) $58.85 (-$1.78)
- 186K contracts traded today.
• May Open: 109K (+34K) $59.64 (-$1.69)
- 29K contracts traded today.
• June Open: 104K (+1K) $60.27 (-$1.64)
- 15K contracts traded today.

Since last Wednesday we have dropped 70,000 contracts, down to 871K for 2007 delivery - that’s 70M barrels of crude that are not being ordered as traders embraced my take on the runaway oil surplus that threatens to crush them with over 1.5Bn private barrels! We need to exercise caution as this give traders a little wiggle room for shenanigans as they open the April contract tomorrow.

Don’t blame the dollar for oil’s troubles as it held flat at 84.17 while gold dropped $14 (2%) to $658. I’m not reading much into this ahead of tomorrow’s BOJ rate decision.

OilDollar

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We took some March oils off the table rather than risk a run into inventories as the usual pattern is we get a nice run-up Wednesday and Thursday no matter what the fundamentals. Both ZMan and I believe this contract will head south next week but I think they will be milking this last hurrah for cold weather for all it’s worth!

• Chevron (NYSE:CVX) $70 puts (1/18) came off the table at $1.20 (up 38%)
• EnCana Corporation (NYSE:ECA) $50 puts (2/15) were done at $2.95 (up 48%).
• Murphy Oil Corporation (NYSE:MUR) $50 puts (2/14) came off even at .80.
• National-Oilwell Varco Inc. (NYSE:NOV) $65 puts (2/8) finished at $1.40 (up 40%)
• Schlumberger Limited (NYSE:SLB) $65 puts (2/14) finished at $3.20 (up 42%)
• Suncor Energy Inc. (NYSE:SU) $70 puts (2/14) came off at $1.05 (up 31%)
• Exxon Mobil (NYSE:XOM) $75 puts (2/6) finished at $1.35 (up 69%)

These are the type of non-greedy exits we are trying to stress in what is still a fairly choppy market. With an average hold time of just about 10 days, we have to be able to take the money and run when we get those kinds of returns!

We also had to say goodbye to our beloved Garmin Ltd. (NASDAQ:GRMN) $55s at $3.40 (up 96%) as they had a sharp pullback from today’s top at $4.20 and we no longer have the luxury of time on this one.

We couldn’t get our morning’s put play on AtheroGenics, Inc. (AIGX), but we were able to get in on the calls. In the end we decided to make a day trade out of it as the intraday comments went like this:

• In the AGIX $25s for .90.
• Waiting to sell Apr $35s. I want to get at least $2 but if it gets to $1.60 I’ll sell them as I’m not looking to be naked on these!
• AGIX traded up to the $20s at $1.
• Dumped 25s back for .90, I like having the extra $5 cushion!
• Offering to sell $20s for $1.25, would save me the trouble of selling April calls!

That went fast for a 25% profit by lunchtime, saving us all the aggravation of actually having to watch the trade! I picked up a few more $20s for .95 at the bell but I’m not risking these into earnings as I’ve already made my money on this one!

Source: Options Trader: Tuesday Wrapup