Options Trader: Friday Morning Ideas

by: Philip Davis

Let’s go markets, let’s go!

Well we’ve tried everything else, we may as well pull out the cheers. Of course all the cheering in the world doesn’t help if your team sucks, so let’s hope for the best…

I’ve gotten my depressing article out of the way, so let’s accentuate the positive this morning and look for some positive signs to develop. Japan pulled back just a bit and the Hang Seng gave up a little ground while the Shanghai continued to post new records.

Europe was drifting lower, but US durable good were up a surprising 5.9% in July, which is a nice ray of sunshine and those markets are ticking up in their afternoon. Both the US and Europe shook off a lot of good news yesterday and went nowhere and I will remind folks that last Friday we had a good start and a bad finish too, so let’s not go crazy. My intention is to strangle the Dow by the end of the day so a 300-point move either way next week will add to our cash reserves.

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US Markets

Although durable goods are nice, that was July and they will be followed by July New Home Sales at 10 am and no prize for guessing how that will come out. Next week we lead off with Existing Home Sales on Tuesday followed by Consumer Confidence and the Fed Minutes on Wednesday (and of course Oil Inventories). Thursday will be a biggie with the Preliminary GDP report and the Preliminary Chain Deflator, Jobless Claims, Personal Income and Spending. We finish off the week with the Core PCE Inflation, Chicago PMI, Factory Orders and the Michigan Sentiment. Yep, you’ve gotta love the 300-point strangle…

We are just skating along at critical levels in this no-data week when CBs have been dumping Billions on the markets every day to support them - that data had better be darned good next week or the panic will become palpable!

Remember we are VERY concerned with the Russell as those companies reflect the debt picture most accurately. If they can’t borrow, they can’t grow and that’s a domino we can’t ignore! But this is supposed to be the upbeat article, so let’s just root for the S&P to get green, just eight points away:

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SPX

Happy still holds out hope for the S&P, but I maintain that $70 oil will put a cap on the markets as the World is running out of money - so if it goes to one place it has to come out of another. Every home that turns into cash takes $300,000 out of circulation and if investors choose not to redeploy that money into the markets, it creates a demand for cash, which in turn puts upward pressure on the dollar no matter how much money the Fed tries to print. I don’t have the exact figures, but if just 500,000 more homes are sold than bought in a year, that’s $1,500,000,000,000 of cash that may not be going back to work in the economy.

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Oil Gold Dollar

Oops, sorry, positive article…

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Anyway, Hank Paulson tells us not to worry and who are we to argue with the winner of the Mr. Potter look-alike contest? As Jimmy Stewart said in "It’s a Wonderful Life": If Potter gets hold of this Building and Loan there’ll never be another decent house built in this town. He’s already got charge of the bank. He’s got the bus line. He’s got the department stores. And now he’s after us.

Why? Well, it’s very simple. Because we’re cutting in on his business, that’s why. And because he wants to keep you living in his slums and paying the kind of rent he decides. Joe, you lived in one of his houses, didn’t you? Well, have you forgotten? Have you forgotten what he charged you for that broken-down shack? Here, Ed. You know, you remember last year when things weren’t going so well, and you couldn’t make your payments. You didn’t lose your house, did you? Do you think Potter would have let you keep it?

Can’t you understand what’s happening here? Don’t you see what’s happening? Potter isn’t selling. Potter’s buying! And why? Because we’re panicky and he’s not. That’s why. He’s picking up some bargains. Now, we can get through this thing all right. We’ve got to stick together, though. We’ve got to have faith in each other.

We’ve got to stick together, we’ve got to have faith in each other and we have to have plenty of cash because that’s the game Paulson Potter likes to play. The last man standing around with cash gets to buy up all the oversold assets for pennies on the dollar - it’s the American way!

Happy hunting,

- Phil