Options Trader: Friday Wrapup

by: Philip Davis

Hey I have a hot stock tip for you! This is an industrial producer that plays off the global economy, very heavy into consumer products. From 1980 to 2000 it was a 10-bagger, but it flatlined after 9/11, and is just coming back out of its shell at 119.86 after hitting some resistance at 120. The P/E is down at 14.71 and it pays a 2% dividend.

I like the March $121s for just $3.40 with 2/3 Dec $119 puts for $1.40, just in case.

Sound interesting?

It's the Dow silly!

Talk about getting no respect, the DIA is the basket of 30 Dow components that has gone from $108 to $120 in less than 4 months riding on the back of a strong global economy that is not likely to go away, but a pullback from $121.55 to $119.77 has everyone screaming for a duck and cover.

Of course I am no fan of the Dow as an index, and I'd love to be able to jettison some underperformers like General Motors Corp. (NYSE:GM), but that doesn't mean the group doesn't have some steam left.

As long as oil remains under $60 we should be able to hold our levels, which in comments today I determined to be 11,922 or, at worst, 11,819. Upside resistance should come at 12,133 and we should retest it some time after the election.

DIA lost .69 this week, down to $119.77, and people are writing articles like this declaring it to be all over. Gee, I'm glad I didn't dump my Toyota Motor Corp. (NYSE:TM) that fast when it pulled back from $109 to $107 back on Sept 22.

In fact, if the Dow jumped up and down as much as TM on its way to new records, there would be lots of traders doing a whole different kind of jumping!

So I still like the market after this week, but I'm no longer in love with Mrs. Jones and the Dow's going to have to earn my respect again if he wants me to call him mister.

The S&P finished the week at 1,364, a little sad but well above our 1,360 worry zone. The NYSE ended up at 8,716 and I remember wondering if we could ever take out 8.700 at the tail end of a 500-point run since 9/11.

The Nasdaq finished right at 2,330, down 20 points for the entire week after gaining 31 points the week before -- not enough to send me out the window quite yet!

The SOX snuck in a quiet gain on the day (.4%), while the transports lost about the same but held steady all day. The VIX briefly woke up but saw it's shadow, in the form of the descending 50 DMA, possibly signaling six more weeks of gains if we can get this puppy pointed back up next week.

Oil had a super mega pump of a day with a big $1.26 gain, fully recovering from yesterday's loss with 30 cents to spare and coming to rest at a lofty $59.14.

You would think it gained $12.60 the way the oil patch responded, but we added more puts to our position (which I will go over on the weekend), taking advantage of the ExxonMobil Corp. (NYSE:XOM) Jan $70 puts for $1.40, already up a dime!

XOM was going along and having another slow day until the bell when 5.5M shares were dumped in 60 seconds! In the last 35 minutes of trading some roaches took advantage of whoever was trying to close at a record high by dumping shares and driving the stock down from $72.39 to $72.15 with an 8M share dump.

ConocoPhillips (NYSE:COP) had a similar big volume sell-off at the close, as did Valero Energy Corp. (NYSE:VLO), Sunoco Inc. (NYSE:SUN), Halliburton Co. (NYSE:HAL) and Chevron Corp. (NYSE:CVX) -- sort of strange behavior since the reason oil went up was that the Nigerian "rebels" are threatening to attack more oil fields. Oh, I'm sorry, that was the link for the attack of Jan 20th, try this one. Oops, sorry again -- that was September 2004, how about this? Oh, that one was February -- this must be it!

What? February 2005 you say? Here we go... Damn, October 5th -- but at lease it was close. Did we do the March 8th attack? Oh hey -- here it is!!! That is really it, hot off the presses. It seems they returned 4 oil executives after 19 days but threatened, "a series of violent attacks against the country's key oil and gas industries."

Wow, these rebels talk like a press release!

They've killed 22 policemen and soldiers but did not harm a hair on the foreign oil guy's heads -- now that's compassionate conservatism!

"This release does not signify a ceasefire or softening of our position to destroy the oil export capability of the Nigerian government," said the group in a statement from an e-mail account used by the hostage takers. "We repeat our warning to expatriates in the oil industry as they may not be as fortunate as these four individuals. Leave our land while you can," it said. "We will shortly carry out greatly significant attacks aimed at ensuring our February target of a 30% reduction in Nigeria's export capacity."

I like it -- they have a mission statement and capacity (or lack thereof) targets and a blog! Maybe we should invite them as special guests on the next inventory day...

We don't have to worry about whether the rebels know what day that is, they seem to be right on top of those oil statistics:

  • Like September 2004 when they threatened "all out war" after oil dropped from an all-time high of $48.66 on August 19th to $42.77 on September 8th (up to mid-$50s by mid October).
  • Or February 2005 when oil sank back to $45 (back to $56 by March 16th)
  • Or January 2006, when oil had dipped back to $58 around Christmas (2 weeks later $68).
  • Or February 2006 when oil dipped back below $60 again (back to $66 in March thanks to a yet another attack on the 8th).
  • Or just a month ago when oil sank back to $58, this one was not very effective -- hence our current escalation.

Anyway, you get the idea: Oil breaks the trend line -- rebels attack, just one of those one in a million coincidences that happens every few months I guess.

In addition to that nonsense we had BP PLC (NYSE:BP) phoning in a bomb threat with a call that supposedly came in at 6am but wasn't released to the press until the European markets closed 6 hours later... Gold held firm against a dollar bounce, thanks to our super-low unemployment. At 4.4% you really do have to have a serious talk with your unemployed friends because that's a good quarter point below "full employment."

I've got plenty more to say but I'll save it for the weekend!

Have a good one,

- Phil

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