Options Trader: Monday Morning Ideas

by: Philip Davis

It’s all about the data this week.

Nothing of note today, but starting tomorrow we get four big days of economic numbers that should give us some real action as we head into options expiration on Friday.

We have earnings of note from Jos. A. Bank Clothiers, Inc. (NASDAQ:JOSB) and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today, Lehman Brothers Holdings Inc. (LEH) on Tuesday and The Bear Stearns Companies Inc. (NYSE:BSC), Goldman Sachs Group, Inc. (NYSE:GS) and Adobe Systems Incorporated (NASDAQ:ADBE) on Thursday. If LEH doesn’t come in with good guidance, however, then it is doubtful we’ll get a boost from Goldman. This is the second Monday in a row I’m not seeing a lot of big deals, but if oil can’t settle down below $65 lack of deal flow will be the least of our problems…


Asia had a decent morning with the Hang Seng up 100 points and the Nikkei up 55, but the Shanghai B-shares closed down five points despite the headline gain in the A-shares of 87 points. The Nikkei finished at 17,834, but was at 17,932 and never did much from its very gappy open. Our Toyota Motor Corporation (NYSE:TM) shares led the Nikkei today and Mitsubishi UFJ Financial Group Inc (NYSE:MTU) put in a good turn as well. A lot of China’s gains came from a long-awaited 3G approval for the telecom industry that kicked the whole sector up about 3% on the day. India DIDN’T drop, and that’s a good thing.

US Markets

Europe is having a good morning, and we really need some break-outs over there to get our markets back on the rally track. Rather than looking at our same old charts, let’s take a look at the data from TickerSense, who did a nice job of giving us some perspective on the global markets since 2003 ===>

Global Markets Since 2003

I’m very surprised at Japan’s p/e, but on the whole, this is in-line with my long-term bullish premise for US equities as we look like a relative bargain compared to Asia. However, the value players need to check out Northern Europe, where the p/es look like they are measured in centigrade!

So let’s not worry too much about an Asian correction; this will start to be good for us as we are still considered a viable alternative for Europeans to park a diversified portion of their portfolios, which are up well over 100% in the past four years (as long as they didn’t have too much money parked in the US). Now may finally be the time for a little bit of global rotation to come our way, but beware of today’s budget report as we will probably be a lot closer to briefing.com’s -$70B than the government’s projected -$50B. That’s a $240B credibility gap that the President and Paulson still have to fill if we’re going to attract all that juicy foreign money to come and do some bargain shopping in the good old USA.

Both Happy Trading and I are encouraged by the charts and we will be watching the SOX and the S&P today to confirm that all we had last week was a small dip and that we would indeed be consolidating at these levels:

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SPX 500

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SOXX - Semiconductor

Not so bad, is it?

It’s all going to be about the interest rates as we got a pretty clear message last week that the markets are in no mood for 5.25% interest. That means we will be hyper-sensitive to Fed statements as well as any indicators of rising inflation - all the things we know to be true but would like to ignore. Energy can save the day if oil were to give up another $2.50 on the week but there are a LOT of roaches trapped in those trades that will fight tooth and nail to stop $62.50 from happening.

ZMan is watching the CTFC net short position and thinks this may support prices despite declining fundamentals. The numbers are astounding, but I wonder how much of it is reflective of longs covering their positions against the possible lack of hurricanes? While I support Z’s logic, we could also envision a scenario in which long holders of actual natural gas contracts who are well covered with shorts may sell with abandon at the first sign of weakness in the hurricane game. $8.50 is 30% above my $6 natural gas target for the spring and I may not be the only one wondering if this price can hold up without some sort of catastrophic event…

Oil and Dollar

Today is a great day to watch and wait. Wednesday’s data will bring some clarity, but I question any move the market tries to make between now and then.

Let’s be extra careful out there today while we try to have a little fun!