Options Trader: Monday Morning Ideas

by: Philip Davis

"Asia, when all my dime dancin’ is through, I run to you." That’s the song investors are singing today as the Asian markets strap on their boosters and seek to join Europe in breakout mode.

The key to this is the net effect of the G7 meeting where the EU has assured the others that they are prepared to shoulder the burden of having the world’s strongest currency, a move that allows both the Yen and the Dollar to slide. A sliding Yen keep weak dollar from killing U.S. consumers (how many European goods do you own vs. Japanese goods?) and maintains the famous "carry trade" that allows the U.S. to continue to find a market for its dubious debt notes as the interest spread continues to mitigate the inflationary risk (especially if they Yen stays low).

Henry M. Paulson

I think we have our own Super Banker, Hank Paulson, to thank for this as the usual G7 finger pointing and foot stomping turned into some sort of mutual admiration society with lots of sensible statements being made by all involved. "The current global expansion provides a positive backdrop to our discussions," he said. Paulson maintains a China policy of talking loudly and carrying a small stick, which is a nudge-nudge, wink-wink kind of way to keep Chinese imports cheap while placating U.S. labor unions by complaining about cheap Chinese imports.

So armed with an ‘armless outlook from the states and a subtle sign from China that they will move more money into equities (remember the $200B they "found" under the mattress last quarter) the Asian markets went back into party mode today with huge across-the-board gains with the Hang Seng jumping 416 points, the Nikkei up 264 and Bombay playing catch-up with a 311-point gain.

Whatta Coincidence

Europe has been our market leader since March and with a 2% jump in the Nikkei (not reflected in this chart), our markets are now 4% behind both continents since we all crashed together at the end of February. While they may eventually move on without us, we can expect at least a short-term attempt to make up some ground. The banking sector in Europe is leading the market with the ABN AMRO Holding N.V. (ABN)/Barclays deal sparking the sector, but not too much new M&A activity today. Could this be because the markets don’t need a boost this Monday, so all the investment bankers are saving up their announcements for a time when they will help cover up poor economic news? No, it’s just a huge global coincidence that nothing of note was announced today…

The urge to merge is still strong in the U.S. as SLM Corporation (NYSE:SLM) looks to be taken out at $60 a share ($25Bn), up 50% from Thursday’s open. I know, you see a chart like this and you say - Oooh, I’ve just gotta get me some of that!

Are American corporations REALLY that undervalued? Sally Mae is a financial corporation and one would think it would be fairly valued, already up from $10 in 2000, so one has to wonder what JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corporation (NYSE:BAC) think is going to happen in the student-loan market to justify a $9B premium on a company with $9B in total sales and $1.1B in profits. Of course, we have Google (NASDAQ:GOOG) and DoubleClick, while Microsoft Corp. (NASDAQ:MSFT) and AT&T (NYSE:T), in an attempt to win the 2007 Irony Award, are filing an anti-trust complaint!

Anything other than a nice gain today will be a real disappointment. There’s no particular bad news other than for Republicans as Hillary already has $31M, more than the top three Republican candidates combined, and Obama is not far behind her at $25M. Even John Edwards at $14M is ahead of all Republicans except Giuliani, and he’s a NY Republican, which is called a Democrat in most parts of the country!

The chart looks good. Hopefully we’ll have to break out some new levels this week - it’s a good thing we’re bullish:













Fib Level


Dow 12,612 59 12,400 12,450 12,528 12,650
Transports 2,829 10 2,736 2,817 2,889 2,983
S&P 1,452 5 1,410 1,426 1,427 1,460
NYSE 9,522 45 9,250 9,250 9,218 9,465
Nasdaq 2,491 11 2,400 2,440 2,454 2,500
SOX 472 -3 470 472 477 490
Russell 819 4 790 798 803 820
Hang Seng 20,757 416 19,400 19,941 20,192 20,600
Nikkei 17,628 264 17,200 17,417 17,617 18,000
BSE (India) 13,695 311 12,750 13,425 13,814 14,200
DAX 7,278 65 6,700 6,818 6,830 7,100
CAC 40 5,828 40 5,500 5,597 5,601 5,780
FTSE 6,497 35 6,200 6,298 6,297 6,450

US Markets

It’s going to be a wacky day on Wall Street today as NJ-based traders literally can’t get to the office, as many towns are flooded out. Brokers arriving late to work can cause buying surges to come in waves, so it will be interesting to see what happens this morning if the markets stay strong.

Let’s keep in mind that this is, in large part, a collapsing dollar rally, so we will be surprised if oil and gold don’t fly up as well. I’m more of a mindset to get our existing picks squared away, though, than to jump in a bunch of new positions right now. Tesoro (NYSE:TSO) got a downgrade from Citigroup (NYSE:C), so perhaps they’ll only go up $1 today…

Oil and Dollar

Google plays is going to be our focus for the week unless oil finally cuts us a break. You can go to HappyTrading’s site to see the supporting charts.

It’s going to be an exciting week!