Options Trader: Thursday Outlook

And the hits just keep on coming!

Building permits and housing starts were much stronger than expected (10%) and that should push our beloved HOVs higher (but don’t get too excited, the gains were the result of code changes in NYC) while jobless claims were slightly below expectations, also very nice.  We get the Philly Fed at 10 and expectations there are for a very pathetic -15 and any beat will give us a nice boost.  Oil is still down at $133, hopefully they won’t take this good economic news as a sign that we like paying $133 a barrel… 

Earnings are coming up roses as well with too many beats to list but notably Dow components JP Morgan (JPM), Coca-Cola (KO) and United Technologies (UTX), with JPM and UTX in our portfolios -- we prefer Pepsico (PEP) to KO -- and we’re looking very good in pre-market trading and looking ahead to the big G(OOG) tonight along with IBM (got ‘em), Capital One (COF), Merrill Lynch (MER) and Microsoft (MSFT) (got ‘em).  Tomorrow morning we see if Citigroup (C) (got ‘em) really deserved to lose $250Bn in market cap or if Meredith Whitney is a loon - that should be fun and you know where my money is on that bet!

We also hear from ex Dow component Honeywell (HON) and OIH mainstay Schlumberger (SLB) tomorrow so a pretty serious day for a Friday.  As long as oil stays down we are going to be fine.  So far, in this whole big week of earnings, only Host Hotels (HST), Hoku Scientific (HOKU) and Johnson Controls (JCI) have guided down versus upward revisions from Altera (ALTR), CoStar (CSGP), VF Corp (VFC) , Lufkin (LUFK) , St. Jude (STJ) , AO Smith (AOS), Fairchild Semi (FCS), Huntington (HBAN) (a bank!), Knoll (KNL) and Ameritrade (AMTD) (a broker!).  I still maintain that a lot of the guidance is still very conservative as CEOs and CFOs are affected by the same gloom and doom pronouncements that you are and all these projections were done with oil in the $140s and looking to go higher.

Oil is not dead yet, even though there was an 8M barrel build in inventory and products vs. an expectation of a 4Mb draw (we were surprised too) no one has ever accused the NYMEX of reacting rationally to what has to be the most shocking example of demand destruction ever seen.  As I pointed our earlier in the week, imports are off close to 1Mbd and they are shipping 1.4Mbd OUT of the country to make it look like we need more oil than we do and STILL 1Mbd is building up in inventory - that is shocking!

Asia was shocked back to life after seeing our rally yesterday and the Hang Seng gained 500 points (2.4%) with the Nikkei gaining 127 (1%).  China’s GDP growth "slowed" to 10.1% and C (got ‘em) won approval to offer debit cards in China.  Europe is off to a flying start, with 2.5% gains so far (9 am) with financials leading the charge.  The UBS probe continues and the Senate probe is indicating the US is losing $100Bn a year to offshore tax evasion schemes.  Bush is, of course, against closing down those loopholes as many poor widows and orphans have offshore accounts and cutting off their ability to hide assets would be an unfair burden on the average American. 

I’d love to see a nice, relaxing gain today, rather than another huge rally.   Something to show us that there is thought being put into these purchases, rather than program buying or knee-jerk rushes off the sidelines by investors who think they are bottom-fishing, as that can be a sign of a bull-trap.  We are well covered, perhaps over-covered but, as I said last night, our 3/4 covers in July calls can be rolled to 1/2 covers of August calls and there’s no way we want less than that over the weekend and, with all the extra cash we committed this week, a more conservative strategy is appropriate until we get a clear indication that this is more than a bounce off 11,000.  If the market really starts to fly again, the DIA calls are the way to go for a nice momentum play.

Things are starting to get fun out there but let’s be careful!

Comments

[blackbody]

I would be very worried when OIL price starts to drop. It may give the market a short term boost but ensuing demand destruction of DOLLAR will be ten times worse for US economy than $140 OIL.

[fatcat]

Good call on rimm yesterday!

[Philip Davis]

Thanks fat - Hope you took the money and ran!

Bbody - The dollar was 40% stronger when oil was 70% cheaper. It's the disposal of $12Bn a day used on a commodity that is burned the same day (effectively burning the dollars) that is destroying our currency. Dollars flood the market as they are exchanged for what becomes nothing as soon as it's used and end up in the hands of OPEC, who don't need them all, allowing them to spend up for things they want creating more global inflation.

If I paid you $2 a gallon for your tap water and you collected $1M a day at a huge profit, then you would end up inflating your local economy spending that money. If I paid you only in Lira and you tried spreading that around, you would find it was harder and harder to pass off as you push more of it on your local vendors and the local banks were swimming in it. Multiply that $1M a day by 12,000 and that is what is happening to the dollar - globally 4 Trillion of them are being used to buy oil per year and the consumers end up with nothing of lasting value for their dollars while the producers get more and more dollars every day and they do last, they pile up and up and up until they become worth what they look like - trash. Your currency cannot have value if you flood the world with it....