Options Trader: Wednesday Morning Ideas

by: Philip Davis

We need to take out those levels.

We need to take out those levels. We need to take out those levels. We need to take out those levels.

Did I mention that we need to take out those levels? Ah good, because we really need to take out those levels… (If you don’t get "The Shining" reference you really should make some popcorn and rent it.)

Anyway, we must take out these levels as yesterday’s action was just not that impressive. It was good, but not great…

We face a real test already today as Asia pulled back already with the Hang Seng giving up 139 points, the Nikkei dropping 79 and India dropping 117 yet the WSJ chooses to go with (and I quote): "Asian markets ended mostly higher Wednesday as shares continued to recover from last week’s losses, but Japan finished slightly lower as exporters lost ground in volatile trading."

Come on guys, take off the pom-poms and do some reporting! Investors count on you to give them unbiased, unvarnished information and I just don’t see how a combined 337-point drop (-.75%) in those three MAJOR markets against 438 points worth of gains from Australia (1%), Indonesia (.6%), Pakistan (2%), Philippines (3%), Singapore (.7%), S. Korea (.6%) and Taiwan (.4%) can be called "mostly higher."

The Shanghai composite, which did start this whole mess off, did finish 2% higher and that is our "shining" (see how it all comes around) ray of hope, and it should be good for our iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI) leaps as well! Daewoo and Posco (NYSE:PKX) made big gains, indicating people over there aren’t all that worried about a major slowdown.

Super Banker, Paulson, has donned his cape and flown all over Asia this week plugging up all the leaks in the financial markets with many encouraging words, but today he’s heading to China to talk about currency controls. Let’s watch our interest rates closely this session to see how it’s going.

On 2/20 I told you that "Citigroup Inc. (NYSE:C) is getting big in Japan, looking to get listed on the Tokyo Stock Exchange, which will make it easier for them to acquire Japanese banks!" At the time the anonymous Citigroup spokesman said, "We have not yet, however, made any decisions at this stage of the study." Here we are just three weeks later and Citigroup is all hot an heavy with a $10.8bn offer for Nikko Cordial, Japan’s third-largest brokerage firm. Always remember, "A spokesman" = "A liar."

Europe is flattish ahead of our open and nothing of note is going on over there. Although there is a Hungarian airline flying people around for $19, so watch the airlines as this "open skies" policy either takes shape of blows apart in a wave of protectionism.

U.S. futures are down a bit and they should be as productivity slowed to 1.6%, down from an estimated 3% growth. Labor costs rose 6.6% in Q4 vs. 1.7% estimated. Gosh, I think these economists need some new dart boards!

US Markets

I posted up levels last night: Dow - 12,334, Transports - 2,818, S&P - 1,402, NYSE - 9,041, Nasdaq - 2,400, SOX - 468, Russell 783. Anything else and going longer is just silly (and that includes Google!).

More evidence of long-term demand destruction in the energy industry. Dan Yergin says: “Venture capital in energy has reached a critical mass. Enough is happening so that significant things will come out of this. With the same intent to do in energy what they did in biotech, they bring not only money and discipline, but they are results-oriented.” He also says there are 4.8T barrels of recoverable oil (133 years worth) in existing fields and he should know, he’s written extensively on the subject.

We have oil inventories coming up today and we’ll see how confident oil buyers are about the global economy as every dollar’s worth of XOM stock adds $6Bn in market cap - that’s a whole lot of confidence! Zman reports that the EIA cut global demand forecasts, something he predicted "would have to happen soon" just last week and here is an article that backs him up. Yet CNBC is reporting the opposite (9:05) saying that the EIA’s predicted GROWTH will pressure oil prices higher.

Can someone PLEASE investigate these people?!?

"The agency’s projections of lower world oil demand growth also reflect more accurate information it has received on conditions in developing countries, and not an expectation of a weaker global economy, said EIA international energy analyst Erik Kreil."

We’re still hugging that $60.50 line - up is bad, down is good.

BP plc (NYSE:BP) got a Cramer pump so we’ll be looking to short them, stay tuned around inventories in today’s comments for all the fun and excitement.

Gold had their fun at $650 so now let’s see if they can hold $640 and the dollar will depend on rumors out of China today.

Gold Oil


No picks today, just a lot of worrying over our existing positions. Hopefully today will be a valuable lesson on why we kill momentum plays at the end of a day because it sure will be an expensive one if we don’t turn the markets up this morning!

BJ Services Company (BJS) earnings were disappointing (.61 vs. .66), Google (NASDAQ:GOOG) got a UBS upgrade and Take-Two Interactive Software (NASDAQ:TTWO) is shuffling board seats, a move that often precedes a buyout.

Be careful out there!