Options Trader: Thursday Outlook

by: Philip Davis April 24, 2008 | about stocks: AAPL / AMZN / BA / GE / GOOG / IBM / TASR    
Philip Davis

Philip Davis

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We’ve been testing the same levels all week.

12,700 has held up on the Dow, 1,375 in the S&P, 2,375 on the Nasdaq, 700 on the Russell and 372 on the SOX. These are all just the levels I said on Monday that we NEED to hold, so let’s not get excited but, as usual, Thursday is a rough day. This time we have a disappointing report from AMZN, who beat but lowered guidance, as did Apple (AAPL), who we couldn’t be happier with.

Unfortunately, all this is occurring against the backdrop Dickensian nightmare that is the end-game of the Bush economic policy in which we are now seeing $120 oil, double-digit inflation and worldwide food shortages; the poor of the world get ground underfoot as another $3Tn of the world’s wealth was transferred to just 600,000 of its inhabitants last year.

As I mentioned yesterday, a full $1.6Tn of that money came in the form of petrodollars that went to very few people indeed (Lee Raymond’s retirement package alone was $350M). This is the joke being played on semi-wealthy Republican constituents; they think they are "one of them" but money is being sucked out of their wallets on a much larger scale than it is on the poor. Only a person who THINKS he is rich and secure can be suckered into giving The Donald $3.5M for a 1,500 square foot apartment that he build for $175 a foot (see "The Dooh Nibor Economy"). That’s how you can live "Trump Style," only there’s thousands of you and just one Donald - sucker!

The same goes for people who pay $60,000 for the privilege of driving a car that gets 15mpg and costs $100 a week to fill up while your food and electric bills go through the roof. You’d better be earning high six figures and paying no taxes or you are in deep, deep trouble at those prices. And are you building wealth? Not at all, you are consuming what the truly wealthy sell you while they buy back the land they sold you at 40% off, using grossly inflated dollars to secure their futures while lobbying to remove the "death tax" so they can pass it on to their children so they can own your children the way you are owned now.

It’s one thing for me to watch a bunch of wannabe rich rubes get bilked by the administration and their supporters but when innocent people start dying (not the war, this time we’re starving the poor instead of blowing them up) I do feel the need to say something. Mark Edwards wrote a book called Biowar, in which he states:

"Every day 30,000 children die from hunger and malnutrition – 11 M a year. Children and adults starve because food costs too much. Price increases from decreased grain supplies are pushing food prices beyond the reach of many developing countries with at-risk populations. Millions more children and adults are likely to die due to the U.S. energy policy. Americans are paying $43 B a year to subsidize the "burn foods for fuel policy" for a weak fuel additive that provides negative value. Imagine what $43 B a year or 50 M tons of food could do for those 50+ countries that are food insecure."

If it were just the 3rd world countries that were starving you could laugh it off and keep playing the markets, but people are starving right here in America and forced to make choices between food or fuel. That leaves little room for spending on consumer products, or even medicine for that matter. Bush’s new pal, British PM Gordon Brown, said yesterday:

"Hunger is a moral challenge to each one of us as global citizens, but it is also a threat to the political and economic stability of poor nations around the world. 25,000 people a day are dying of conditions linked to hunger. With one child dying every five seconds from hunger-related causes, the time to act is now."

Rice prices are up over 100% in the past 60 days and now we are seeing hoarding by restaurants who are trying to avoid getting slammed by rice the way the were by flour and wheat and corn last year. This by itself will cause the markets to destabilize and I caution speculators that grains are not like oil, when they are stockpiled by consumers there is inevitably a very big crash. Agriculture prices are already pulling back off their highs, down 20% from the March top, and the dollar is recovering but we need the Fed to literally buck up and hold the line on rates, if not at next week’s meeting then at least in the language of the statement. We need a dollar recovery to stop this madness.

As we expected, the G7 is stepping up their rhetoric with BOJ Minister Watanabe warning "drastic action is needed" by the US to fix the credit crisis. "If there is a big hole in the bottom of the tub, no matter how much hot water you keep adding, you will never have enough hot water," Mr. Watanabe said. Fixing the leak requires "an overall package, including monetary policy and public money," he said. Congress is indeed doing SOMETHING, putting forth a botched version of my housing plan that has the government step in and buy up properties AFTER they’ve been foreclosed on. Better than nothing? Only slightly …

Hopefully, this is that dawn that things always look darkest before. The Asian markets were mixed with the Nikkei holding flat at 13,500 as Nintendo reported a 48% increase in profits but, like Amazon (AMZN), fell victim to forecast pessimism. The Hang Seng gained another 391 points as China’s investor tax cut that we discussed yesterday is a big hit, and the Shanghai composite jumped 9.3%, an amazing feat since 10% is limit up for individual stocks. Over 200 companies had trading halted at the day’s limit before lunch! This was, of course, fabulous news for the rich, who snapped up shares with abandon, and terrible news for the poor, who had been convinced to put their life savings into the market prior to its 50% drop but, hey, you’ve gotta love those tax cuts, right?

Europe is down about a point ahead of our open as CS posts a bigger-than-expected loss (yawn) but there is also a sell-off in commodities as the dollar came bouncing back base on our winning strategy of sucking just a little bit less than other countries. Our markets should continue to hold our levels as a dollar comeback makes US equities doubly attractive to foreign investors, especially big names like Apple (APPL), Google (GOOG), IBM (IBM), Boeing (BA), and General Electric (GE) (stuff we already have).

Speaking of sucking, Taser (TASR)’s sucky competitor, Stinger Systems, is suing them because they "implied to customers and potential customers of Stinger that the NIJ study is final and relates to the current design of the S-200." This is sending TASR tumbling pre-markets and represents a huge buying opportunity, probably the June $7.50s for .75 or the much cheaper September $10s, which are a double down for us after we buy out our callers. If this suit had any merit, Stinger would come off its .37 low.

Everything is coming up roses for us if we can hold it together today. Our coverage seems just right, and if oil sells off we will be sitting pretty. Durable goods are down again and we’ll worry more about that next week, when we start getting a lot of data. Jobless claims were a bit better but nothing to get excited about.

Let’s watch our levels and have some fun!

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This article has 14 comments:

  •  
    Apr 24 11:20 AM
    Our site is down so I'll comment here if anyone is around.
    Reply | Link to Comment
  •  
    Apr 24 11:30 AM
    CROX breaking up. GRMN flying, lots of our stuff doing well, I think we're getting a turn up here.

    NVDA still down but I still like them.

    TASR just getting worse and worse. Huge volume, 5x normal day so far with over 10% of the float being dumped this morning. There are 17M shares short at around 10 and they'll cover at $7.50 so this is probably the right spot.




    Reply | Link to Comment
  •  
    Apr 24 11:47 AM
    Oh, so 8M more shares and TASR should start going up.


    Applefly $10KP/$25KP - Rolling $155 callers up to $160s for $3 XXX Same for DTP
    Reply | Link to Comment
  •  
    Apr 24 11:47 AM
    We're back up on main site!
    Reply | Link to Comment
  •  
    Apr 24 12:46 PM
    Does soft music come with that WINE?
    Reply | Link to Comment
  •  
    Apr 24 01:25 PM
    Where were you, and did gross, when hundreds of millions of Chinese, Russians, Cambodians, Indians, along with Vietnamese and dozens of others were starving, at a time you and I spent, ate and wasted as we continue doing.
    Times change humans are just that, Human.
    It's good that a greater portion of this worlds poor are better off. It's sad that we see the world as an Eden, for we only see as far as our mind allows. This has been so since we arose from the mud of some long ago lake.
    Reply | Link to Comment
  •  
    Apr 24 04:43 PM
    People were starving when corn was $2 bushel. Evan if farmers in Iowa were giving the stuff away poor nations could not afford the diesel fuel required to ship it to Africa. And evan if it got to Africa their corupt government would divert it or feed it to their troops.

    Reply | Link to Comment
  •  
    Apr 24 04:48 PM
    I have an idea. Lets keep using ethanol as a gas additive. A 10% mix does have 40% less tail pipe emissions compared to pure gasoline. Any one here want to argue in favor of more air polution. We could convert the tobacoo fields to growing food. Less cancer, more food.
    Reply | Link to Comment
  •  
    Apr 24 04:53 PM
    6.6 billion humans sounds like enough to me.
    Reply | Link to Comment
  •  
    Apr 25 11:35 AM
    Interesting article. Thanks for writing and publishing it.
    Reply | Link to Comment
  •  
    Apr 25 01:12 PM
    Obviously poverty is caused by breeding oneself into it i.e. irresponsibly having children one cannot support. This is in any nation at any time. We cannot feed children as fast as irresponsible people have them. Children are dying because they shoudn't have been born in the first place.
    We need an all nation, all government, all media, all religion campaign
    for any and every type of birth control the exists. With education the rythm method is available to everyone, everywhere.

    dogsbody
    Reply | Link to Comment
  •  
    Apr 25 02:09 PM
    Poker Donkey
    You got that right.
    Reply | Link to Comment
  •  
    Apr 25 04:22 PM
    Absolutely on the money.
    Birth control not macho.
    Cows and others are sacred.
    Millions are spent and food donated that never gets where it is intended.
    This has been going on for YEARS.
    We just need more celebrities to adopt these poor unfortunate kids.
    Reply | Link to Comment
  •  
    Apr 25 05:56 PM
    My Irish grandparents had 12 children. My father had 3. I have 4. The change in our respective family size is I believe attributable to the expectations of the mothers of the family. My grandmother was a full time wife and mother, and was expected to produce children. My mother was a successful professional, as has been both of my wifes. Another aspect is to the value of children to the parents. In rural societies, children contribute to net revenues; in urban societies, they contribute to net expenses of their families.
    Reply | Link to Comment
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