Options Trader: Thursday Outlook

We had a very hard time not panicking yesterday.

Panic is easy, sticking to your plan is very, very hard.  We made few moves during the day, sticking to the Tuesday Wrap-Up plan to grab the DIA puts and let those gains offset our losses.  The $113 puts opened nice and low at $1.10 and finished the day at $2.50, where we turned around and sold them against our longer puts.  So we ended the day not exactly bullish but not too upset either as we held about half the gains we made on Tuesday, despite the terrible market action.  I concluded that there was a change in long-term sentiment and, in last night’s Wrap-Up, I went over the macro view of where we are in our crisis cycle.

Asia didn’t panic this morning as both the Hang Seng and the Nikkei managed to hold flat for the day at 21,821 and 13,067 respectively.  China’s rapidly slowing export growth has currency traders guessing that the government will curb Yuan appreciation, which is good for the dollar.  The Shanghai Composite pulled back 1.5% after a nice couple of gains but the rest of Asia was flat, flat flat despite the very scary US drop.

Financial stocks and steel stocks did very well and I find the steel stocks strange, as clearly the China building boom is losing steam and Toyota (TM) just announced more SUV and truck production cutbacks and I’m pretty sure those are the two things steel is generally used for.  Yesterday in comments I said about SNE, "they are building up their OLED screen capacity which will wipe out LCDs sometime next decade…" and this seems to have prompted the Japanese government to take action (they are subscribers) as they formally annouced this morning that they are "working with Sony Corp. (SNE), Sharp Corp. and other electronics manufacturers to jointly develop a promising next-generation television technology, in the latest effort to retain the competitiveness of Japan’s electronics manufacturers."  Original members will remember that we were big fans of OLED pioneer Cambridge Displays before they got bought out by Japan’s Sumitomo Chemicals.

Over in Europe, the BOE is holding rates steady at 5% despite the slowing economy, which is GOOD economic policy as throwing money at a problem that is rooted in inflation is just plain stupid!  The London FTSE actually responded well to the Bank’s vigilance and the DAX perked right up as well with both trading down about 1% on the day (8am) but well off the lows.  Banks and retailers are weak in Europe as the EU looks to increase capital requirements on certain credit products.

The BIG news in the US markets is Dow Chemical (DOW)’s $15.3Bn deal to buy Rohm & Haas (ROH), a 74% premium on yesterday’s $44.83 close!  This only caused the $32Bn chemical maker to fall about 5% pre-market, indicating that investors may think things are ridiculously undervalued as well and, if DOW holds up in today’s trading, this may finally be a sign that it’s safe to get back in the water on the M&A train, which has been parked at the station since early last year.

Retail sales were stimulated last month so it’s hard to call a trend, but Wal-mart (WMT) had a 5.8% increase in same-store sales over last year, much better than expected.  The company remains conservative but does forecast a 2% growth rate for July as well.  Costco (COST) had an even better 9% gain but they attribute 4% of that to gasoline sales.  Overseas, where there are no stimulus checks, COST reported an excellent 11% increase.  I keep waiting for COST to come down but it never does, they are a great operation!  BJ's Wholesale Club (BJ) jumped 16.5% and said half of that was gasoline sales - lots of summer fun!

 

Oil did just what we expected it to yesterday as the "surprising" draw of 5M barrels surprised no one here, as it's the exact number we predicted 3 weeks ago when they closed NYMEX trading 20M barrels short for July (evidenced by the drop in imports already of 621,000 barrels a day below last month).  It was actually worse than it seems for the oil bulls as the refiners got stuck with almost 3Mb of distillates  they overproduced for the low-demand weekend.  Don’t expect oil to come off the floor today and, as long as they stay under $137.50 for the week, we’re happy…

Another strange thing you will notice looking at that oil inventory link - The US is EXPORTING 1.44Mb PER DAY of petroleum products.  That means we are ordering 10Mb PER WEEK, which adds to our "consumption" refining it (I thought we had a shortage of refineries) and then sending 10Mb PER WEEK out of the country so it doesn’t show up in inventories.  So it appears that we are using 10Mb more per week than we really are, as refiners flip the product over to other countries while oil bulls point to "evidence" of a shortage of product here in the states.  Nice scam!

Gasoline use is now at a 5-year low after spending a month over $4 and we are now down over 5% from last spring’s usage levels.  "We think oil is set for a significant correction," says Michael Waldron, an energy research analyst at Lehman Brothers. "But it’s probably not going to occur until the end of this year or the beginning of next year."

As evidenced by yesterday’s intra-day action, we need oil to go MUCH lower before the markets can get it in gear. So we will remain very well covered and very, very careful until we get some resolution to this latest round of bank hysteria and some meaningful relief at the pump.

Comments

[trade flow:]

After losing $30,000 as a subscriber to philstockworld.com I have decided that Phil is best taken as humorous political/economic commentary and NOT used for any trading advice.

Here's a tip to everyone thinking about philstockworld.com - gains and losses are only accurate if you take every one of Phils trades. In order to do this you need a trading account with over $100,000.

2008 Jul 10 02:16 PM

[Philip Davis:]

Al - discussed in previous post. What exactly is your problem?

Trade flow - what was your member name?

2008 Jul 10 05:56 PM

[cmetrader:]

Thanks for a link to your paid site, dick. Loose more money on your oil trades?

2008 Jul 10 10:18 PM

[tradeflow:]

member name: edtotheed
email: [e-mail]

2008 Jul 11 02:07 AM

[cyclops:]

Good call, from just yesterday no less, Don’t expect oil to come off the floor today and, as long as they stay under $137.50 for the week, we’re happy…
I guess you ain't happy then?

2008 Jul 11 09:30 AM

[Philip Davis:]

No I'm not happy, are you? The market sure isn't and oil going up was our signal to go negative and cover longs yesterday. Am I not allowed to have a market premise on which we take action now?

Tradeflow, I see you were a member from 11/30/07 - 12/29/07 on my site and from 9/7-12/7 on Wangs. I can't speak for Andy but obviously Dec was a rough month with the Dow dropping 500 points but I'm very curious as to what it was that you lost $30,000 on in one month.

2008 Jul 11 11:42 AM

[tradeflow:]

Actually Phil I was a member on your site for 4 months - 3 months in addition to the one month you found. Maybe if you check for my email address or the paypal account that I used to pay for the subscription you could see that I was a member from 9/7 thru 12/7.

I know the market was not producing the best returns during that time but I can surely tell you that your site boasted many 100% gains that I was not a part of. This was because my $30,000 wasn't enough to take all of your trades.

Also in response to your "solution" for the person holding BAC calls I would have to say that your rolling down strategy could cause ADDITIONAL LOSSES if BAC goes up and they can't buy back the calls they sell for less or let the calls expire worthless. I have been burned like this many times.

I think your articles are humorous and I agree with most of your commentary but I must tell you and everyone reading this board that I lost $30,000 using your advice. Its not as easy as Phil's website marketing makes it out to be. In fact it's pretty hard to even catch all of Phil's trades - much harder to catch your exits and rolls.

I did have better luck with wangshappytrading.com and zmansenergybrain.com. These sites are more tuned in to my active trading, but not full time trader position now.

2008 Jul 11 02:14 PM

[Philip Davis:]

I'm sorry that you had trouble. If you like that kind of trading I'd be happy to give you a pass for our new Swing Trading portfolio, run by Optrader, I think it might be more what you were looking for as they are mainly momentum trades with a constantly updated live spreadsheet with all the entries and exits laid out.

Let me know if you'd like to take a look.

- Phil

2008 Jul 11 06:41 PM

[tradeflow:]

Sure Phil - I'll take a look at the Swing Trading portfolio. Just to see if it fits my style a little better.

my email is [e-mail]

2008 Jul 12 01:32 PM

[Philip Davis:]

Tradeflow - Greg will be in touch with your shortly.

2008 Jul 14 02:10 PM

[Nickles:]

I agree I think Phils site should be called "philstockscam" instead of "philstockworld". I mean the guy claims after 20% gain you should get out, which logically means non of his position should see a gain of at least more than 30%. Yet he claims huge returns north of 100%. What is going on is that he ignores most of his losses and he makes so many calls that he just keeps the winners and totally ignore the losses. So, he has a winning percentage well well super above normal portfolio month after month which is fictitious and the uses it as a marketing tool. I don't even know if he trades real cash, my bet is that he makes more money from his suscribers than he makes trading.

2008 Sep 09 09:43 AM