Options Trader: Tuesday Morning Ideas

by: Philip Davis

Did we pick the right time to get out yesterday or did we jump the gun?

We closed just 20% of the open positions in the short-term portfolio (representing 1/3 of the value), but we stand ready to take another round off the table if the markets are mean to us today. There’s nothing wrong with having cash on the side - I’m sure we’ll find something good to trade tomorrow.

Whether we deploy that money long or short will depend on the S&P and Happy Trading’s chart of the day gives us some very clear goals:

Click to Enlarge
S&P 500 Index - 6 Months - Daily

The Nasdaq faces a similar test at 2,525, so we’ll be watching both of those indexes very closely.

Today we get the ISM report at 10. Ben Bernanke is speaking this morning and he has been a rally saver several times this year already. Maybe it’s a coincidence that he will begin speaking just as we get housing and ISM numbers, but we can expect the Fed spin to trump facts, regardless of the numbers.


The Nikkei didn’t like our drop in personal spending yesterday and the Nikkei broke back below our critical levels, finishing at 17,274 - slightly above last Wednesday’s close. Most other Asian markets were closed, and I’m concerned that my theory that European cash would find its way here by default may have be flawed; perhaps it was Asian, not European investors, who have been propping up our markets. That could turn a quiet week in Asia into a nightmare for us! Gosh, this whole global market thing is so complicated…

Europe is having a holiday too (how do we get in on this thing?). Only the FTSE (London) is trading and they have turned down in their afternoon trading as miners drag down the markets. A drop in commodities is just what the doctor ordered for our market, so it remains to be seen how things shake out for us. Our portfolio has drifted a lot closer to 50/50, so we watch with interest to see which way the wind blows:















Dow 13,062 -58 12,468 12,600 13,000 13,500
Transports 2,834 -47 2,825 2,900 3,000 3,250
S&P 1,482 -11 1,430 1,460 1,500 1,550
NYSE 9,627 -77 9,218 9,465 9,600 10,000
Nasdaq 2,525 -32 2,454 2,500 2,600 2,750
SOX 492 -5 477 490 500 560
Russell 814 -15 803 820 850 900
Hang Seng 20,318


20,200 20,600 21,000 22,000
Nikkei 17,274 -125 17,400 17,500 18,300 18,500
BSE (India) 13,872


13,200 14,000 14,725 15,000
DAX 7,408


6,900 7,000 7,400 8,000
CAC 40 5,960


5,650 5,800 6,000 7,000
FTSE 6,422 -26 6,325 6,450 6,600 7,000

US Markets

Ouch! This chart is turning downright hostile on us! It’s all up to the Transports and our buddies at the XAL (Airline Index) to shake it off and join the party. The S&P and NYSE look like they’re ready to take their toys and go home, though.

Violence continues in Nigeria, but suddenly nobody cares as oil is having a lot of trouble at the $66 mark. However, as with the rest of the market, we will adopt a wait and see attitude. I just can’t bring myself to go long on the oil plays, though - even Tesoro (NYSE:TSO)! Tomorrow’s inventory report, or rather the reaction to it, will be telling.

The dollar seems to be consolidating for another move down, so let’s keep an eye on gold. We will get some reports from miners this week and I’m looking at Barrick Gold Corporation (NYSE:ABX) (5/2) for a beat. The Jan $30s for $1.75 seem attractive, despite the early panic.

Oil and Dollar

Lets be careful out there today and listen to Uncle Ben!