Options Trader: Tuesday Wrapup

by: Philip Davis

Well, how many times have we been here?

Last week, Tuesday and Wednesday were good days (higher than here). The week before, Tuesday, Wednesday AND Thursday were great days (up 250). The week before that (Jan 22 in case you’re losing track) Tuesday and Wednesday were good days (up 180), but that Thursday I warned, "After Monday’s aborted moon mission you can understand why I’m a little leery of getting back on board that rocket, as it just blew up on the launch pad three days ago! This time we’re going to triple check our levels and see if we can get the SOX drive working but the oil pressure is already over $55 and may scrub this mission before we even get to a countdown."

While I hate to be the voice of reason, it was a very good thing we didn’t buy that rally as the Dow gave it all back the next day! This time things may be different but, then again they may not - oil is back at $59 and our close for the day, 12,654 is 5 points lower than that Jan 24th high. On the whole, it’s been a whole lot of work to get us back to where we were three weeks ago.

As we wait for Bernanke to move the markets tomorrow we’d better be prepared for anything, from a 200 point drop to a breakout over 12,700. If oil rallies into inventory and breaks back over $60, it is very unlikely we’ll be posting new highs but another rejection for oil at $60 coupled with gold falling below $660 because the fear factor is falling apart would only need just a little bit of top-spin from Bernanke to both crash commodities and rally the broader markets.


Uncle Ben knows what to say:

The economy is strong and will remain strong because of a new global paradigm, and we must embrace the free markets to keep the flow of capital around the world. There is no reason to loosen policy because rates are still historically low and the excess liquidity has formed a commodity bubble that is already losing steam and may achieve a soft landing of its own.

Party on, Ben!

I’m reprinting the EXACT same levels I targeted for Wednesday morning, Jan 25 -- the day before the 200 point drop that took us back below 12,500 (testing 12,400) that Friday:

  • "Dow needs to pop right through 12,600" - Finished at 12,654, check!
  • "Transports must retake 2,750." - Finished at 2,873 - check!
  • "S&P should fly by 1,430 but will likely pause at 1,440" - This time we made it to 1,444 - check!
  • "NYSE needs to top 9,200 for us to feel secure" -Finished at 9,351 - check!
  • "Nasdaq is 2,450 or bust! And I do mean bust as they were at 2,500 last week…." - Finished at 2,459 - check, but lower than the 2,466 we hit on the 25th!
  • "The SOX are a disaster and AMD isn’t going to help much but INTC needs to lead us back over 460." - 460 exactly! We are still having trouble with our SOX drive…
  • "Russell CAN"T have any more trouble with 790! IWM $78s for $1.35 will make a nice play if we do break out!" - Finished at 812 - check! (and those IWM $78s are now $2.76!).

US Markets

You would think I’d have my spacesuit on, ready for our moon shot tomorrow, but if there’s one thing our President has taught me it’s "Fool me once, shame on you, fool me - you can’t get fooled again!"


Oil fooled us again today with a $1.25 "bounce" to $59.06 after a $1 run into the close. Those April contracts are plumping up like a spring chicken with 282M barrels on tap for warm weather delivery to Cushing. Let’s see where we are with just three trading days left to go compared to Friday’s close:

• March Open: 172K (-58K) $59.06 (-.83)

- 277K contracts traded today.

• April Open: 282K (+55K) $59.85 (-.78)

- 157K contracts traded today.

• May Open: 92K (+17K) $60.61 (-.72)

- 40K contracts traded today.

• June Open: 102K (-1K) $61.91 (-.69)

- 13K contracts traded today.

So we have 487M barrels of crude changing hands today ($28Bn) and the two day net movement is just 19M barrels actually purchased.

Heaven forbid anyone should actually look into this nonsense!

Either I’m going to learn a lesson or oil traders are going to learn a lesson this week as those 172M March barrels need to go somewhere, and they’re going to have to sell a lot more than 26M a day to get down to the 60M by Tuesday -- that I project is the most they can accept for delivery during March.

Zman compiled a nice list of potential put candidates, and we would do well to have our finger on the trigger tomorrow, ESPECIALLY if we get another failed attempt at $60 around inventory! I will post up a list of possible plays in the morning. There’s a nice WSJ article pegging oil at $57 for this year and $54 for 2008 -- they’ll have to do better than that to get into our clubhouse!

If you forget that it’s a proxy for oil - what is your projection for this three- month chart of United States Oil Fund LP (NYSEARCA:USO)? How about six months? one year? Over $28B was spent on this chart TODAY! And why is Brent Crude not getting this great fake bounce? Do they have regulators in Europe???

IPE Brent Crude Oil Closing Price

Great comment I heard today regarding the sudden death of floor trading: "Bob Pisani is now walking around the floor of the stock exchange asking servers how their day is going."