Options Trader: Monday Wrapup

by: Philip Davis

Are we there yet?

We tested a whole new low today, right at the end, breaking down towards 12,000 - a level we have only seen once since we first broke over that mark on October 23rd.

I’m looking for us to flatten out at this point, possibly all the way into options expiration next week as the market needs a rest stop, so I think, aside from a possible blow-off test of 11,900, that this will be a logical place (12,000-12,200) to take a break and assess the situation.

Let’s not forget that 11,970 is our 5% rule from 12,600 but I think we have to consider the fact that 12,600 was a spike and if we throw out that data point, we are basing our drop off 12,500 which would take us down to 11,875. The S&P peaked at 1,460 so 1,387 was a given but the real consolidation took it to 1,440 at best and that drops us 1,368 (now at 1,374).

The NYSE was running ahead of he pack and spent less than a month over 9,200 so 8,750 is not out of the question. What we have here at 8,837 is hardly even a pullback yet…You see - it’s all just a matter of perspective! The Russell dropped 100 points May through July and I can’t find one headline from that time saying it was the end of the world but last week’s 50-point drop has CNBC reporters wearing hard hats (really) on the floor of the NYSE. Sensationalism or manipulation? So hard to tell these days…

The Nasdaq looks a lot like the Russell but has been a laggard all year. It dragged along at 2,350 before finally "breaking out" to 2,500 but the real 5% rule here is a drop from 2,350 to 2,232. Holding 2,350 would be our first really bullish sign. So let all the analysts keep asking if we’re there like kids in the back of a car - we’ll keep our eyes in the front while the big boys drive the markets.

US Markets

Oil dropped $1.57 today, finishing down at $60.07 and was saved by a Herculean effort on the part of the NYMEX pump crowd who jammed it all the way up from $59.60 into the close. While this was going on, 32M shares of XOM got dumped as more roaches fell into the trap while a parade of analysts spent the whole day telling viewers what a bargain Exxon Mobile (NYSE:XOM) was at $70. Such a bargain that a spike in volume to 32M shares couldn’t get them to finish green!

Gold is moving right along to my $625 target, but I’m still holding my leaps as minor protection against some sort of catastrophe. It’s funny how for an entire year we were worried about China, North Korea, Iraq, Iran, Afghanistan, Global Warming, Hurricanes, Bird Flu, Debt, the Trade Deficit and domestic terrorism and, in the end it was a Bank of Japan .25% rate increase that killed a rally that effectively began in October of ‘05.


Could it just be possible that, after climbing over 25% in 24 months, it just might be time for a little break?

There are two rotations I have been looking for in order to get us to Dow 15,000 (my target for June ‘08): a rotation out of commodities, which included Homebuilders and Brokers (the commodity of cash - including the dreaded "carry trade") and a global rotation away from emerging markets and back to the good old U.S.A. Well, that’s what this looks like to me!