Options Trader: Monday Wrapup

by: Philip Davis

Wow, what a day!

We’ve owned The Boeing Company (NYSE:BA) for ages, TASER International, Inc. (NASDAQ:TASR) since it was at $8 and Happy Trading had us in Cummins Inc. (NYSE:CMI) from Friday and STP this morning. We’ve all been playing with First Solar, Inc. (NASDAQ:FSLR) for a while so our day was about as good as it gets…

Things were so good that Happy’s 21% Google day trade, my 20% free day gainer on Energy Select Sector SPDR (NYSEARCA:XLE) and ZMan’s very timely newsletter call on Newfield Exploration Co. (NYSE:NFX) are hardly worth mentioning as they didn’t even give us a double yet. Kudos to all who participated. With CMI and TASR and FSLR, there was literally no way to say you missed it as we watched them go higher and higher and higher all day. Thanks to BMB who told us why FSLR was up first thing this morning. It’s a lot easier to get in on a good run when you know there’s a good reason for it! OptionDragon has been our biggest CMI booster, calling it his favorite on Friday while my love for TASR is well known to our regular readers.


Well, every dog has it’s day and the Dow had one today with a finish at 13,650, just off the all-time high. Strong performances that propelled the Dow were turned in by Alcoa (NYSE:AA) (earnings), American Express Company (NYSE:AXP) (done with the pullback), BA (Dreamliner), Caterpillar Inc. (NYSE:CAT) (Japan machine orders), General Motors Corporation (NYSE:GM) (insane people), Intel Corp. (NASDAQ:INTC) (SOX rally), Johnson & Johnson (NYSE:JNJ) (stock buyback), Verizon Communications Inc. (NYSE:VZ) (no reason) and Exxon Mobil Corporation (NYSE:XOM) (raping you and making you love it). The S&P turned in a small gain led, unfortunately, by the energy sector with ConocoPhillips (NYSE:COP) sealing the deal by announcing a $15B stock buyback in the afternoon.

Human Need

Kudos to COP for joining the ranks of oil companies who don’t waste their money looking for oil, building up refining capacity or (heaven forbid) fixing existing refineries so they can operate at full capacity for more than five consecutive days. While Conoco spends $15B to buy back 10% of their own stock, PetroChina Company Limited (NYSE:PTR) actually explores for oil and increases production and has driven their stock price up over 30% since May. Remember when American companies used to produce something besides earnings reports??? As long as we reward this counterproductive behavior by our corporations, this is all we can expect from them. We really can’t afford to allow them to line their pockets by mortgaging our future for much longer, though - we are literally running out of time before this country becomes an also-ran in the human race.

Interestingly, the Transports had a pretty good day as well as the oil sector, led by ridiculous FedEx Corporation (NYSE:FDX) takeover rumors that seemed to trump the fact that the gas they use for — EVERYTHING — is up at record levels. Barron’s has become the gossip master for the buyout rumor mill and the way M&A activity has been going this year. Nothing seems impossible, but $35B for a stock that was $24B in ‘05 with a p/e of 18 seems just a bit rich for private equity. Someone asked me about United Parcel Service, Inc. (NYSE:UPS) today and I said the same thing, I just can’t get behind them based on the current fundamentals, despite the fact I like both companies.

AA had so-so earnings after the bell. I’m very happy about that as we will get a good picture of market sentiment as you could read their report optimistically or pessimistically, so it will make a nice Rorschach test for the markets tomorrow morning.

Both Darden Restaurants, Inc. (NYSE:DRI) and The Cheesecake Factory Incorporated (NASDAQ:CAKE) has nice reports after hours and should be up nicely tomorrow. If we continue to see signs that happy consumers are out and about, it won’t take much to get this quarter off to a rockin’ start.
Yum! Brands, Inc. (NYSE:YUM) reports on the 11th and will give us a nice look at the low end of the dining market.

Speaking of happy, Happy Trading is looking for a breakout on the Nasdaq as we finished right at my 2,670 target for the day.

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US Markets

Gold was rejected from my $666 target - to the penny! Oil bounced back from an open at $73.40, but closed at $72.61 with the NYMEX pump crew refusing to lose at $72.50. Just $1.04 separates the next six months worth of contracts and that’s got to be making energy traders nervous. In fact, there is NO $74 oil being traded all the way through December 2015.

That’s right, T Boone - it’s time to put your money where your mouth is and buy those $71.67 Dec 2015 contracts. It should be a slam dunk, right? How about you Phil Flynn of Aleron? If oil is so sure to hit $80 this summer, then how many barrels of December crude do you own for $73.01? Contango is slipping, folks, and that may mean the pumpers are losing control of this market with over 500M barrels of oil scheduled for delivery to Cushing, OK between now and the end of October.

In order to get those 500M barrels up to $80, NYMEX traders needs to pony up $4B in addition to the normal money they toss into the pits as they churn over 400M barrels worth of contracts a day in order to keep the prices up. Tanker rates in Europe are hitting lows for the year, another sign that we may have peaked out. "We wouldn’t speak of it as a freight collapse…but it does seem to have moved into a softer summer trading market that we’ve had in previous years," said Clare Grierson, an analyst with Simpson, Spence & Young in London. E.A. Gibson shipbrokers said VLCC voyage rates to Japan were trading at WS105 or $67,200 a day in June 2006 compared with WS59 or $34,750 on Monday.

While we made money on the plus side of oil today, let’s remember what a crock it is!