Options Trader: Tuesday Morning Ideas

by: Philip Davis

Three hundred gallons of radioactive water spilled into the Sea of Japan yesterday and that can only lead to one thing: Godzilla!

That’s right, the king of the monsters was spawned by just such an event and shareholders of
Cameco Corporation (NYSE:CCJ) ran in terror yesterday, giving us the best buying opportunity we’ve had in months on one of my favorite stocks. While the company has some real issues with the shutdown of one of a major mining project due to flooding, it is not a long-term issue. Additionally, the small dip in uranium futures was caused by CCJ’s announcement that they have avoided a possible strike and expect the mine to be delayed by less than one year (2011, rather than late 2010).

Uranium Spot Price Indicator

Kelvin Chan points out that short selling has run up to 6.2% on CCJ, who are scheduled to report on 7/31, haven’t issued a warning and are selling Uranium that is 280% more than last year’s Q2 average of $42 - have fun with that play shorties!

Coincidentally (yeah, right), there was also a rumor floated that CCJ was going to buy Paladin, who have already denied what is looking more and more like a pre-earnings attempt to flush people out of the stock as it consolidates for a run over $60. We are already long with a double on our Jan $55s, but I did take the opportunity to buy out my callers yesterday and even added more contracts rather than panic with the rest of the crowd.

All the world’s markets are currently poised in Monster Breakout Mode and rolling right into the goals I set back in May.

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US Markets

Asia was more or less flat this morning as Japan took a pause to recover from yesterday’s earthquake with insurance stocks (of course) leading a mild Nikkei decline.
CNOOC Limited (NYSE:CEO) had strong earnings and rose 3% in the Hang Seng as the company seeks to make a clean double since Jan ‘06. Watching how they handle 120 will be a very good gauge of investor sentiment in the oil majors.

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US Markets

Some other stuff happened in Asia and something might be happening in Europe, but we really don’t care today because we have so much going on over here we can hardly think straight! Earnings are going to come hot and heavy this week and the reactions we get here will likely set the tone for all of earnings season. So … no pressure, boys:

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Merrill Lynch & Co., Inc. (MER) posted strong numbers this morning, but Johnson & Johnson (NYSE:JNJ) was not so hot and that makes me very nervous. Still, if MER is an indicator, a play on the beaten down Financial Select Sector SPDR (NYSEARCA:XLF) Aug $36s for $1.30 may be in order. Wells Fargo & Company (NYSE:WFC) just announced in-line earnings that offset what turns out to be manageable sub-prime losses. There were warning signs, though - Like most other major lenders, Wells Fargo encountered more loan problems in the quarter as higher interest rates on home loan and rising gas prices made it more difficult for consumers to pay their bills on time. Wells Fargo’s loan losses totaled $720 million in the second quarter, a 67 percent increase from $432 million at the same time last year. U.S. Bancorp (NYSE:USB) USB missed on similar issues.


We also have earnings we’ll be watching from Abbott Laboratories (NYSE:ABT), The Allstate Corporation (NYSE:ALL), Advanced Micro Devices, Inc. (NASDAQ:AMD), AMR Corporation (NASDAQ:AMR), BlackRock, Inc. (NYSE:BLK), The Bank of New York Mellon Corporation (NYSE:BK), Broadcom Corporation (BRCM), Boston Scientific Corp. (NYSE:BSX), Capital One Financial Corp. (NYSE:COF), CSX Corporation (NYSE:CSX), Cemex S.A. B de C.V. (NYSE:CX), Cypress Semiconductor Corporation (NASDAQ:CY), Delta Air Lines, Inc. (NYSE:DAL), Dow Jones & Company, Inc. (DJ), Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC), First Data Corporation (NYSE:FDC), FSL, Gannett Co., Inc. (NYSE:GCI), Gilead Sciences, Inc. (NASDAQ:GILD), Harley-Davidson, Inc. (NYSE:HOG), The Hershey Company (NYSE:HSY), International Game Technology (NYSE:IGT), Junpier Networks (NYSE:JNPR), JPMorgan Chase & Co. (NYSE:JPM), Kinder Morgan Energy Partners LP (NYSE:KMP), Southwest Airlines Co. (NYSE:LUV), Mellon Financial Corporation (MEL), Noble Corporation (NYSE:NE), Nucor Corporation (NYSE:NUE), Oakley, Inc. (OO), Pfizer Inc. (NYSE:PFE), PNC Financial Services (NYSE:PNC), Schlumberger Limited (NYSE:SLB), SanDisk Corp. (SNDK), Sovereign Bancorp (SOV), SunPower Corporation (NASDAQ:SPWR), SunTrust Banks, Inc. (NYSE:STI), Seagate Technology (NASDAQ:STX), UnitedHealth Group Inc. (NYSE:UNH), Union Pacific Corporation (NYSE:UNP), Wachovia Corp. (NASDAQ:WB), Whirlpool Corporation (NYSE:WHR), Washington Mutual, Inc. (NYSE:WM), Wyeth (WYE) and Xilinx, Inc. (NASDAQ:XLNX) - so this should be lots of fun!

We also have tons of data as well as Uncle Ben testifying before Congress, but at least the core PPI gives him some ammunition to tell our representatives that inflation is just something they heard about from their parents. Briefing.com says:

Briefing.com Says

Party\'s Over

The core PPI was up .3%, much hotter than expected but the non-core was down .2% on falling gasoline prices - so we’ll see if the perma-bulls suddenly start favoring the headline numbers AND TELLING US THE CORE DOESN’T MATTER! It actually is a good number, because most of the increase in the core came from automobiles, which were up 1.4% as car makers terminated key fleet discount arrangements with rental companies. Industrial Production and Cap Utilization were great and Net Foreign Purchases were a nice surprise at $126B, but that was during May, as the dollar rose - June and July may be another story.

Brent crude is dropping, while NYMEX oil is rising and Phil Flynn is running out of ways to pump the prices - so it should be an interesting week. ZMan says the easy oil party may be over, and we are very excited about tomorrow’s upcoming live energy report so tune in!

I don’t expect to break 14,000 without some sort of "venting," as Happy likes to say, so let’s stay light on our feet and keep our eyes wide open as truly anything can happen in this wild earnings and data week.

Whether we have a meltdown, temporary or not, or go radioactive and stomp on the bears, will most likely be determined this week. Usually I say that the market will decide how to interpret earnings regardless of the actual numbers, but this quarter I think the market is very much looking to read the tea leaves of our corporate reports. Until we get a clear picture, let’s keep a level head, tighten up our covers and be ready for anything!