Options Trader: Thursday Wrapup

by: Philip Davis

That was disappointing! The day started nicely enough but we finished up testing our lows instead of our highs. Perhaps oil testing the top of my oil danger zone mattered to the indexes -- only the Nasdaq really got going and even that gave up by the afternoon.

The Dow closed just a hair over the 12,100 mark but the S&P slipped just under 1,380 and the NYSE held 8,800 while the Nasdaq held the 2,375 line -- this was not such a bad day folks!

The markets have simply lost their taste for $60 oil and you can see the direct affect it had on the 10am surge as well as the 1:30 bounce that pushed the indices lower. Looking at the longer range chart, it is very clear that much of this rally is predicated on the expectation of lower oil prices.

One could say that perhaps the markets have been manipulated for the past two months in an attempt to keep voters happy and the price of oil was kept down in an attempt to boost one party or another's chances (we won't point fingers). Now that the elections are over, perhaps we are just resuming the natural course, which would be the correction we've been expecting for quite some time.

We'll keep an eye on that, especially with the very poor performances turned in by the transports, (down 1% to the 200 DMA) and the SOX (down 2% to the 50 DMA).

Tranq 10 11 06 Sox 10 11 06

Today we blame the strike threat in Norway for oil's rise (what ever happened to Nigeria?) as crude posted a high of $61.33 in a blatant attempt to prove I didn't know what I was talking about when I said it would top out at $61.38 this morning! Obviously, if I'm going to miss by that much I need to find another hobby...

I know how hard it is to keep the faith in a spike like this and believe me, I am losing it myself, but this non-breakout 2% rise in crude came against another big drop in the dollar which shot gold up $18 (3%).


  • We had a crummy start to the morning and didn't trigger our buys although Dell Inc. (DELL) would certainly have been a good one with a 3% gain on the day but a clear rejection off my $25 target.
  • Texas Instruments Inc. (NYSE:TXN) was tempting but the SOX kept us from pulling the trigger as they never showed any sign of strength.
  • Nice (well not very) Motley Fool article on Cambridge Display Technology Inc. (NASDAQ:OLED).
  • AT&T Inc. (NYSE:T) had a terrible day and gave us no reason to buy as it sold all day on huge volume and BT Group plc (NYSE:BT) went down as well. There is a baseless fear that the Dems will not like the merger but Dingell says he is not standing in the way of the merger so I will be looking at the Jan $35s for .55 if the markets can get positive tomorrow.
  • We let go of the Diamonds Trust Series 1 ETF (NYSEARCA:DIA) Mar $121s for $4.20 (up 24%) early on -- good thing too!
  • Sony Corp. (NYSE:SNE) finally broke below $40 and we are in the money with our $40 puts at .65 but still down a dime.
  • Perrigo Co. (NASDAQ:PRGO) got some very bad news this morning and we caught it in time to grab the May $17.50 puts for $1.15 (now $1.45).
  • Joy Global Inc. (JOYG) stopped out at $40.25 (up 8%), very strange with miners all doing well but not bad for 4 day's work.
  • As I said on Monday, the NVIDIA Corp. (NASDAQ:NVDA) purchase of PortalPlayer Inc. (NASDAQ:PLAY) is a great move and The Motley Fool agrees with me and investors loved the earnings today.
  • Also on Monday I said I didn't like Abbott Laboratories (NYSE:ABT) buying KOS Pharmaceuticals Inc. (KOSP) for a 50% premium and it looks like I'm not alone there.

Read all of Phil Davis's articles on Seeking Alpha