Options Trader: Tuesday Outlook

NOW we get some real data!

I still can’t figure out what the market was so excited about yesterday. By the afternoon I felt like some crabby old man yelling at the kids who were playing on the lawn. At 3:30 I said to members: "Does anyone remember the guy from Wal-Mart (WMT) saying he was seeing his customer’s buying habits severely impacted at the end of the month as they run out of paychecks, or was I dreaming about some market in an alternate universe where $125 oil was still considered expensive?"

It’s not like I’m a perma-bear - in fact, our Day Trading Portfolio jumped 32% yesterday (happy 300% by the way!) so I’d say we had things positioned just about perfectly as oil pulled back and Apple and Google went up while the things covered all pretty much behaved themselves. Our LTP grinded out a point, the STP lost 5% because, as I noted on the Weekend Wrap-Up, we were over-hedged to the downside with our DIA puts. The $10KP held flat and the $25KP also dropped 5% as our callers there pretty much killed us (ANF, FIG, VLO, AAPL) as we played that portfolio more to protect than to win. So it’s not that we are ALL bearish, but we really need to see some evidence before we go all gung-ho bullish on the markets.

I know I started the day saying that the people saying "sell in May, go away" were idiots, giving terrible advice. And I was more bullish than the MSM in the morning but - Not THAT bullish! I wanted to slowly overcome resistance and grind forward as we move through this week’s data and earnings, forming a nice base that we could trade off. Yesterday’s trading was madness and what goes up for no reason can, unfortunately, go down for no reason as well.

WMT did, in fact, announce a good quarter today but they are guiding to a miss, saying there will be little (if any) US same-store sales growth and the stock is being punished in pre-market trading. So that’s WMT and FedEx (FDX) guiding down in the past two days - I suppose if Target (TGT) and UPS (UPS) give us bad news we can ignore that too???

Another bleak outlook came from Nissan (NSANY), who expect profits to fall 30% for the year, about the same as Toyota's (TM) 27% slide and Honda's (HMC) 18% projected drop. "It’s going to be a tough year for the industry," said Carlos Ghosn, who is chief executive of both Nissan and alliance partner Renault. All the auto companies are suffering from the weak dollar, which lowers their collections, as well as rising commodity prices, which are driving their costs sky-high. Despite this, Nissan is working with Bajaj Auto in India to produce a $2,500 car for Asian markets as well as a line of electric cars for the US, which Ghosn is aiming at the city driving market.

Nissan’s bleak outlook didn’t stop Asian markets from having a party though, as the Nikkei popped 210 points and the Hang Seng picked up 489 points on the same no news in particular that took our markets higher. The Shanghai Composite did fall 1.8% but they did have a major earthquake so we’ll have to forgive them for not being in a buying mood yesterday. Trading was halted in the 66 companies based in the Sichuan province, where the earthquake was centered so look for more damage tomorrow and anyone clever enough to pick a few of those companies to short the ADR will probably do quite well when trading resumes. Korea had a field day led by Samsung and LG Electronics so we should get some good SOX action today.

Europe is off slightly ahead of our open with Credit Agricole looking for $9Bn to stop the sub-prime bleeding and SocGen (SCGLY.PK)Airbus announcing another 3 months of delays in A380 deliveries and posting a 23% drop in Q1 profit and ANOTHER $1.8Bn in write-downs. As we expected, UK’s CPI was bigger than big, with a 3% rise - right at the level that will require a mandatory letter from the BOE as to what they intend to do about it. The CPI for the month climbed 0.8% after rising 0.4% in March so this is hardly looking like it’s under control!

Retail sales numbers fell in April but the decline was led by Autos (down 2.8%), who we knew were going to suck, so the markets are focusing on a surprisingly good ex-autos increase of 0.5%, well above the 0.3% expected. Sure it might occur to someone that the massive amount of money NOT spent on autos may have found its way into other consumer purchases, but that is no reason not to be alarmed by an overall 0.2% decline in overall retail sales DESPITE the fact that gasoline sales (a major component) were up 0.4% leaving even the ex-auto group down 0.2% if you measure it ex-gasoline. But that would require thinking - so there’s no danger of that happening in today’s market reaction.

It’s looking like it’s "Sell in May, miss the rally" so far, but I still can’t buy it with Import prices up another 1.8% along with March being revised up to 2.9%. A 1.6% increase was expected, so inflation is still worse than we thought on both sides of the Atlantic. Import prices are up 15.4% since last April, and last month alone petroleum prices jumped 4.4%, posting a 57.2% gain for the year. Excluding petroleum, import prices were up 1.1% for the month, the worst since 1988, when George’s Dad was running the economy. Our export prices were up just 0.3% as we are unable to pass our rising costs on to the rest of the world, despite the weak dollar.

I’d love to be able to flip bullish but I am maintaining a cautious outlook ahead of tomorrow’s CPI report as we still need a real fall in oil prices, a sign that the Fed will stop debasing the dollar and do something concrete about the housing crisis, which is still throwing 7,000 consuming families onto the street every single day. Bernanke spoke this morning and said that market conditions "are still far from normal."

On the bright side this morning, the IEA has lowered its oil demand outlook for the year to 1.2% growth, down from 1.5% last month and down from 2.4% that was projected last fall. The areas of increasing demand, China and the Middle East, are places where oil is heavily subsidized while US demand is off 2.1%, now 20.4Mbd - still about 1/4 of the entire world’s oil consumption by 5% of its people.

Crazy day ahead - be careful out there!

Comments

[seeksome]

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[optionsgirl]

Yes, the market is not reacting as you'd expect given all of the bad news. However, it is also thinly traded right now-- Caution, caution, caution.