Options Trader: Thursday Morning Ideas

by: Philip Davis

“All human wisdom is summed up in two words - wait and hope.” - Alexandre Dumas Père

It is hard to wait for the right moment to deploy our capital.

We investors are, by nature, a hopeful group and we tend to get jumpy when the market looks hot, always worried we are going to miss something. This is kind of funny because the people who are anxious to buy today are the same people who couldn’t wait to sell on Tuesday.


What changed? We had this conversation just this weekend when I warned not to get too excited about a "dead cat bounce," yet now we have a weaker bounce and my mailbox is filled with questions from people who want to BUYBUYBUY. I love buying stocks as much as the next guy but I prefer to buy stocks that ARE going up, rather than stocks that LOOK like they are going up (it’s a fine distinction).

I was excited to buy last week because we oversold because, as I said at the time: "NASDAQ 100 Trust Shares (QQQQ) made a nice doji yesterday as volume tapered off to half of last week’s peak. Look for the very rare "abandoned baby" pattern to form the candle chart of the Qs (it will gap up at the open and finish the day at or above yesterday’s high) to signal a real reversal which could have all those shorts covering for the rest of the week." I say this now to remind you know I can be bullish when I have a good reason to be! More importantly, I can also be patient - and that is what is called for here.

The MSM (main stream media) does not want you to be patient - they need you to BUYBUYBUY because U.S. investors control over $4 Trillion dollars in market wealth and if they lose you, it makes it very hard for the "professional" investors to prop up the rest of the market. Since you purchase no advertising on CNBC, while brokers purchase millions of dollars worth each month, their choice is fairly clear in the matter. You also failed to advertise in the WSJ or Forbes or Fortune or even in the IBD this month, leaving them no choice when it comes to choosing between the interests of their readers and the interests of their sponsors.

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So you have only yourself to blame, as you are assaulted by messages telling you how foolish you would be to not jump in and buy on the dips. You don’t have to believe me but just ask yourself, who is selling when you are buying, and why do they need YOU to buy if it’s such a good time to get in? These are the same people who told you that Google (NASDAQ:GOOG) was overpriced at $160, that Apple (NASDAQ:AAPL) could never grow into its $40 value and that the The Chicago Mercantile Exchange (NASDAQ:CME) had outrun its potential at $200 - listen to them at your own peril and beware the ides of March!

And now, back to our happy, happy market report:

Asia bounced back nicely last night, retaking about 1/3 of yesterday’s 500-point drop bringing the Nikkei roaring back to recover a total of 328 points (18.5%) of it’s 1,768-point drop since 2/27. Wow - KOUBAIKOUBAIKOUBAI (that’s Japanese for BUYBUYBUY! Is my sarcasm too subtle here? It’s hard for me to tell).

The Hang Seng was not quite as enthusiastic as the Nikkei, managing just a 132-point recovery for the day, bringing it a full 310 points back from its 2,141-point drop (14.5%). You’ll have to excuse me if I’d like to watch those markets for another day or two before I start converting all my dollars into Yen-backed securities…


Europe has similar results with the CAC jumping 69 points, all the way to 5,365, now down just 406 points from it’s 2/26 highs. That’s a 21% bounce! The FTSE made up 92 points of its 462-point fall (20%) and the DAX added an impressive 109 points, offsetting 18% of its 603-point drop.

We still need to check the levels I laid out yesterday…

Now the PPI came out and everyone is worried about the markets (which I predicted earlier in the week, but who ever listens to me?). The CPI is tomorrow, so unless it miraculously denies the PPI, don’t look to be saved there either.

US Markets