Options Trader: Tuesday Wrapup

by: Philip Davis

We are not out of the woods yet!

While it was nice not to go down for a day, there is nothing I hate more than the false hope of a commodity rally, and that’s all we really had in ethe end.

The Dow picked up 56 points, but didn’t we lose 106 recently? Yesterday maybe? So where are my other 50 points?

We need to hit our greedy levels of Monday, not our pathetic bounce levels to which we retreated today!

If you want to chase out a bear you need to be big, you need to be loud, you need to intimidate . . . Taking back 56 out of 106 points is only going to encourage him to come back for more!

Who were our Dow leaders today? Boeing Co. (NYSE:BA) took back $2 of the $3 they lost yesterday, Walt Disney Company (NYSE:DIS) regained .43 to get back to Friday’s close, Caterpillar Inc. (NYSE:CAT) clawed back to Monday’s open, The Home Depot Inc. (NYSE:HD) got most of the yesterday’s losses back, Honeywell International Inc. (NYSE:HON) retook almost half its loss, McDonald's Corp. (NYSE:MCD) retook yesterday’s open . . . Only Alcoa (NYSE:AA), JPMorgan and Chase (NYSE:JPM), Merck and Co. (NYSE:MRK), AT&T (NYSE:T), United Technologies (NYSE:UTX) , Verizon Communitcations (NYSE:VZ) and Exxon Mobil (NYSE:XOM) are actually up for the last five days, the other 23 components are still trending down!

I’m skipping levels today because I really can’t pick apart the S&P (which had a strong five-point gain but failed at 1,430 and couldn’t hold yesterday’s open) as easily on a stock-by-stock basis or the Nasdaq, which sputtered to a .34 gain. Nothing special happened today, but it’s all in the past now, and there may be a light at the end of this forest as Yahoo! Inc. (YHOO), Sun Microsystems Inc. (NASDAQ:SUNW) and Seagate Technology (NASDAQ:STX) all gave us pretty good news in after-hours earnings! Advanced Micro Devices Inc. (NASDAQ:AMD) was a wet blanket but that should boost Intel Corp. (NASDAQ:INTC), and I’d sure rather see $118B INTC gain half a point, from an index perspective, than see $9B AMD up 5%!

I don’t even think any of that matters, as we wait for Bush to give us the Annual Report on the United States (although technically there is an economic report next week). The market was roiled by rumors today that I won’t even bother to discuss as we will hear from the man himself how great everything really is.

US Markets 24 01 2007 Chart

Oil thought things were great today, and our new March contract leapt up to $55.04, making that last $1.50 in the last half hour of trading! The biggest one-day gain in the year was engineered accomplished in very heavy NYMEX trading that left 401M barrels on order, with just 20 trading days left until the Feb. 20th close of the March contract. Even more amazing than the $1.50 jump in oil just as the NYMEX closed was the fact that 268,000 contracts had to change hands in order for just 8,000 contracts to be added to yesterday’s 393,000.

Book of Bluffs Jan 24 2007

Churning is interestingly illegal when it is done with stocks, but it seems perfectly acceptable for the people who buy and sell on the NYMEX floor to trade 2/3 of the contracts on a given day, selling them back and forth to each other in a global game of hot potato which climaxed last week with a $13 drop (20%) from the close of the January contract on 12/19.

Keep in mind that just 33.7M barrels were open on the 12/19 close while February closed out yesterday with 28M barrels on order for March (perhaps because we had a build of 11M barrels last Wednesday). Now they are telling you they are going to take delivery on 401M barrels for March, generally a slower demand month, after the winter and ahead of "summer driving season."

While it’s a little to early in the month for us to call their bluff, we are eyeing that big old pile of chips they’re putting on the table and waiting for the game to run its course so we can call them out when it's time for them to show their cards - because we know they’ve got nothing while our inventory reports show a very full house!

Was gold bluffing when it ran up to $645 this morning? It’s hard to say. Last time gold hit $645 was Jan 4th, and it finished at $610 at the end of that same week. Back then the dollar was at 83 and rose to 84.5, today the dollar bounced back off 84.5 and it remains to be seen whether that was a minor pullback or a firm rejection off the 85.15 mark.

Gold bugs have good reasons to be nervous when irrational world leaders start pounding the pulpit, making wild accusations and banging the war drum, but Bush will be done speaking soon and we’ll see how the pundits interpret the speech in the morning.

Oil Dollar Gold 24 01 2007 Chart