Options Trader: Tuesday Morning Ideas

by: Philip Davis

What else matters today? Who runs the country for the next 2 years?

Word on the streets is that it will be better for the dollar if the Dems take control as the Republicans have proved unable to control spending.

"The Bush administration has followed a remarkably irresponsible course by requesting many spending increases but rarely asking for cuts to programs or agencies. As for Congress, few members talk about eliminating unneeded government programs, much less entire departments."

Here's a great election status chartfrom the NYTimes, I hope you don't need a subscription...

Control of the Senate may come down to the vicious race between incumbent Republican George Allen and Democrat James Webb.

While the Democrats may gain control of the House, changing senators is a much bigger deal and although 3,000 Americans have died in Iraq to date, it is nothing like the 67,000 that died in Vietnam that caused the whole country to rise up against incumbents back in the 70s.

The other toss-up Senate races are Montana, where polls show Dem challenger Tester and 3 term incumbent Burns, and Missouri, the Michael J. Fox ad state.

The Dems need all three of these races and no surprises in the 8 states they lead: MD, Min, Mich, NJ, Ohio, PA, RI and Wash.

Even if all these races go the Democrats way, that's just 50 seats. Connecticut will likely go to Lieberman, who has broken away from the Democratic party but hasn't quite joined the Republicans yet.

Tim Ryan looks safe in Ohio despite a nasty smear campaign against this very outspoken young congressman. The Republicans really hate this guy because he comes prepared to debate!


Ah well, it will all be over tonight (other than 20 or 30 legal actions initiated by losers).

Hong Kong took a rest today but Asia was up on the whole. Toyota Motor Corp. (NYSE:TM) reported a 34% increase in net and is on track to make $19B this year, despite the weak dollar. $19 billion just happens to be General Motors Corp.'s (NYSE:GM) entire market cap! Toyota sold 717K cars in the U.S. last quarter vs. 604K last year.

"Despite increased raw-material costs and business expansion expenses, we aim to achieve higher levels of revenue and profits through further increase of vehicle sales and cost reductions," Toyota's spokesman Mitsuo Kinoshita said in a statement.

Speaking of Vietnam, Intel is invading Ho Chi Minh Citywith a $300M plant that will employ 1,200 people. The WTO is about to recognize Vietnam so we'll be hearing a lot from them in the future.

Europe is flat and left very confused by yesterday's run as they were told the markets would trade flat into the election.

U.S. traders should be in a great mood this week as bonuses are projected to rise 30% this year. With $46B in bonuses being paid out, no wonder Tiffany & Co. (NYSE:TIF) is heading up!

We need to see if we can retake our tops now as a failure to breakout will make yesterday's action look like a bounce.

The Dow looks strongest and needs to add 63 points to make a new high at 12,168. The S&P is just 10 points away from a new top at 1,389, while the NYSE has 27 points to go to take back 8,847.

The Nasdaq is, of course, over 2,000 points below it's record high, but not so far from its recent high of 2,379, so let's focus on that!

I will be most worried if the SOX break back down below the 50 DMA at 455, while the transports have a long way to go to get back to 2,852 (May's high). As it turns out, shenanigans have brought that index down (see below), so I will not be surprised to see a rapid 250 point (10%) gain in that sector if the rest of the market stays positive.

Armed Nigerian protesters shut down an Italian oil facility yesterday while OPEC's Nigerian President says more cutbacks are necessary. At the same time, Nigeria projects their own production to increase from 2.5M to 4M barrels a day by 2008 so we hope one day all these guys can get their story straight.

Gas prices are at 10-month lows, a very lucky break for incumbents as people fill up to drive to the polls! In some parts of the country, prices are down 33% from the summer, at lower levels than last November when oil was at $56.

Oil will break an up trend if they manage gains today ,and I'm still using my $61.69 mark as a very painful top of this range, but a real break above $60 will almost certainly take us there so I am planning to pull and rebuy remaining oil puts at those levels.

Oil Chart 7 11 06

Obviously California's Proposition 87 will have a lot of bearing on this although the oil bulls are already spinning it as a catastrophe for U.S. production and will try to raise the price of oil on a victory.

Of course the opponents to 87 say we should leave our energy future in the hands of the oil companies. Funny thing, it turns out that, in the past five years, oil companies have only increased their E&P budgets by 5% after adjusting for inflation.

This makes sound economic sense as there really is no point in looking for oil since we have a surplus but... oh why bother???

Gold is still having trouble with $630 and needs to break out soon if it wants to be taken seriously. The dollar will crumble if the Republicans hold both houses so we can make our weekend gold plays based on that if we get that kind of exit data.


Well Netease.com Inc. (NASDAQ:NTES) was fun while it lasted but they turned an 11% overnight gain into a 5% pre-market loss by lowering guidance in this morning's conference call.

More good news for Google Inc. (NASDAQ:GOOG) as Verizon Communications Inc. (NYSE:VZ) is in talks to carry YouTube on cell phones. Currently, less than 1M of VZ's 50M customers subscribes to its VCast system, so this could be a big win for both companies if it catches on.

Watch those Telco stocks as Microsoft Corp. (NASDAQ:MSFT) has targeted VOIP as the next idea they will try to make people think was theirs. eBay Inc. (NASDAQ:EBAY) may run into trouble here as Skype is still regarded as an iffy investment.

MSFT has formed an alliance with Vodafone Group plc (NASDAQ:VOD), who we did well with last month but they are a little stretched at this point.

Toll Brothers Inc. (NYSE:TOL) lowered guidance again and had a huge increase in cancellations and is now looking at "revaluing" their land holdings. Congrats to Prof who called this exact scenario last Summer when builders were turning in record profits and making new highs. They have a CC at 2pm and the $27.50 puts might make a momentum play -- we'll check it out in comments later.


On July 19th, Swift Transportation Co. Inc. (SWFT) adopted a "stockholder protection plan" to "discourage potentially abusive takeover tactics" and the stock dropped from $33 to $22 in the next 60 days.

SWFT gave a warning on 9/29 and prompted a sector downgrade in transports and, of course, millions of their shareholders sold. Oddly, despite the warning, some people kept buying shares.

Swift Transport Chart 7 11 06

On 10/9 they raised the outlook and on 10/25 hit the top of the range.

Now Goldman Sachs Group Inc. (NYSE:GS) and the management, including ex CEO Jerry Moyes, make a buy-out offer for $29, 15% less than it was trading for in July and I guess I'm the only guy in America who finds this suspicious!

I suppose all you people who vote for a market free of government oversight must be reaping the rewards of these insiders who manipulate the media to suck ordinary investors in and out of positions at will.

Let's stay that course so every single one of us can be in that top 1% and not in the 99% that's getting trickled on!

Read all of Phil Davis's articles on Seeking Alpha