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The Camel's Back is Hurting

Friday, October 24th, 2008

The straw that might break the camel’s back could be falling today as the market is struggling halfway through the trading session. Other markets around the world plummeted Friday as world governments and central banks seem helpless in stopping the inevitable — a global recession. I’ve mentioned all week how we look poised to test the market’s lows and we may get that in the afternoon session.

Oil continues its freefall despite a decision by OPEC to slash production by 1.5 million barrels a day for next month. Believe it or not, oil is at $63/ barrel and looks headed to the $50′s. Good news for gas.

Gold is also taking a hit, falling as low as $680/ ounce. What has once always been considered a “safe haven”, gold is now at its lowest levels since January of last year.

The Dow is still currently trading above its October 10 lows but is still down 358 points to 8332. It was a scary pre-market environment this morning as the Dow futures had dropped 550 points. That would have been a 700-900 point bomb that would have hit the market at the open. It is extremely rare that futures drop this low before the opening bell which triggered a temporary halt to slow the decline.

Usually when the market reaches these chaotic levels the New York Stock Exchange could be forced to use “circuit breakers” that could lead to temporarily shutting down trading. This hasn’t happened in over 10 years but would take effect if the Dow drops 1,100 points before 2pm.

The VIX (^VIX, 77.93, up 10.13) popped up to 90 this morning. If you haven’t read my blogs about the VIX, type in “VIX” in the search box there on the right of this webpage.

The last hour of trading is likely to be something to behold. We did well playing the market bounce at the beginning of the week and I have been preparing us for another test of the lows. I’m not sure if we get there today but it looks as though the bears are holding pocket Aces. We will have to see how this plays out but the market is setting up nicely for us to get into a big, big pot.

Rick Rouse
Rick@OptionsMentoring.com

Tags: New York Stock Exchange "circuit breakers", stock futures
Posted in Market Analysis | No Comments »

Baidu's Profits Rise, Shares Fall

Thursday, October 23rd, 2008

Baidu.com (BIDU, $212.54, down $36.55) tried to stay afloat after reporting spectacular numbers but ended the day 15% lower as Wall Street remained cautious about the Chinese economy. China’s leading search engine reported a profit of $51 million, or $1.46 a share, on revenue of $919 million.

Baidu is China’s version of our Google (GOOG, $352.32, down $3.35) although Google has a strong footprint there. Baidu controls about 60% of the Internet search engine market in China and Google is a distant second. However, the growth for both companies remains strong as Internet users are expected to grow at double-digit rates in China. Other parts of the world can’t match that growth.

Just like Google, Baidu’s share price has been cut in half from its 52-week high. It’s hard to believe that a stock prices continue to drop despite some companies reporting a 100% increase in profits. But that what happens when you are in a bear market.

Baidu’s business model is intact and we will have to see what kind of impact a slowing global economy will have on the company. I’m not ready to jump on the bandwagon but Baidu will have some days where it is going to bounce back strong. When the market gets out of its funk, the leaders will once again lead the market higher. Baidu is a premium name caught in the backdraft of the market.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Baidu.com Earnings, Chinese Internet Companies
Posted in Company Commentary | No Comments »

Casino Stocks Continue Slide

Thursday, October 23rd, 2008

There are so many sectors of the market that are making 52-week lows and the casino stocks are no exception. We made a Watch List for the sector back in June and at the time they were cheap. Guess what? Cheap has become cheaper. But it was hard to go long because of rising oil and food prices.

Although oil has backed off to under $70/ barrel and consumers are adjusting, more and more people seem to be saving cash. This has not helped the gaming industry and these stocks continue to suffer. In fact, I was shocked at how much they have fallen in four months. Here is today’s action versus where these stock were in June.

Las Vegas Sands (LVS, $8.57, down $3.13), was $54

MGM Mirage (MGM, $10.22, down $2.22), was $42

Wynn Resorts (WYNN, $40.34, down $6.04), was $92

Boyd Gaming (BYD, $4.13, down $0.72), was at $16 (buyout candidate?)

Pinnacle Entertainment (PNK, $4.04, down $0.48) was at $12

Trump Entertainment (TRMP, $0.64, unchanged) was at $3

Most of these stocks are 50%-80% off their highs. Unbelievable. I haven’t checked the gaming revenues in a few months and I’ll try to get to it over the weekend. The market always overshoots to the high side when things are robust and tends to go to extremes when things are crappy.

The gambling/ casino business is still a growing industry and new legislation is allowing more and more states to participate. Plus the market abroad has even bigger potential. Given the reduced stock prices and lowered expectations, this is one sector that may be worth looking into buying some LEAP call options.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Boyd Gaming, Las Vegas Sands, MGM Mirage, Pinnacle Entertainment, Trump Entertainment, Wynn Resorts
Posted in Company Commentary, Sectors | No Comments »

Potash Plummets

Wednesday, October 22nd, 2008

Potash (POT, $67.10, down $6.26) continued its slide today which allowed for some nice entry points for a couple of call option plays. The stock fell nearly 10% and touched a new 52-week low of $63.58 in the process. We can pretty much blame the decline on the horrendous day the Dow had (down 500+) and the fact that everyone is fearing a global recession.

I had mentioned Tuesday night that the November 80 calls (PVZKP, $4.70, down $2.20) and the 2010 January 180 calls (WPTAW, $3.00, down $1.00) were high risk/ high reward trades. Potash opened near $70 and both calls were naturally lower than where they were from Tuesday’s close.

The market downtrend was intact from the opening bell which may have scared some of you away from the trade. That was not the purpose. The trade has been balanced so that if the November calls do not perform up to expectations then we still have insurance with the January 2010 calls which do not expire for another 16 months.

Potash could continue lower and I still think the Dow has another 1,000 to go on the downside so the risks are there. We still have seven more trading days for the month of October and the aforementioned calls could become even cheaper. That is why we are doing half positions on a lot of trades and even hedging a few because I still expect us to test the market’s lows again.

Rick Rouse
Rick@OptionsMentoring.com

Tags: January LEAPs, November calls, Potash
Posted in Company Commentary | No Comments »

Apple Looking To Open Higher

Wednesday, October 22nd, 2008

Apple (AAPL, $91.49, down $6.95) reported earnings after the bell Tuesday and they pretty much followed the script we had written. Yeap, Apple knocked the cover off the ball as it reported a 25% jump in quarterly profits. The company reported earnings of $1.1 billion, or $1.26 a share, versus $904 million, or $1.01 in the year-ago period. Wall Street was expecting $1.11 a share. Revenue came in at $7.9 billion which was just shy of the $8 billion Wall Street had predicted.

Now for the bigger story. They were expected to do 2.9 million in Macs sold, 4.5 million for iPhones and 10.5 million in iPods. Apple did 2.6 million Macs, 11.1 million iPods and…6.9 million iPhones. (I knew that Atlantic City trip would pay off. I saw multiple iPhones at every poker table). How big was the iPhone number?

Research in Motion (RIMM, $50.53, down $3.38) reported that it sold 6.1 million BlackBerry smart phones in its quarter. Not only did Apple knock-out the 800-pound gorilla of the smart-phone market, they did it Buster Douglas style. Although James “Buster” Douglas delivered one of the most shocking upsets in sports history, his stay on top was short lived as he lost his next fight and retired. I doubt Apple will suffer the same fate as the company looks prepared to defend its title for many years to come. RIMM is right at 52-week lows.

The problem with Apple’s report was its guidance going forward. I told you they would sandbag and that they did. Here is the cat-and-mouse Wall Street and corporate America play…Apple expects to earn $1.06-$1.35 a share on sales from $9-$10 billion. That is a 29 cent and a billion dollar range. Wall Street had been expecting $1.65/ $10.57 billion. Geez.

The guidance is what may have spooked traders as the stock started the after-hour session lower as it traded in the $80′s. However, things quickly turned around as buyers started flocking in. Maybe Apple in the $80′s was just what the bulls were looking for. The stock finished after-hours trading at $103.61, up $12.12.

That is why there is so much risk trading around earnings. Although Apple looks like it may open over $100, the guidance could have wrecked havoc on any call positions if buyers didn’t step in last night. Yeah, I was more bullish than bearish on Apple but I told you that the guidance would be lowered and it would depend on how Wall Street reacts. That’s a 50/50 flip in this market. I was calling for a one or two-day rally and we might get it. But even if Apple opens at $102 or $103, it will still be trading under last week’s high of $116.

There will be a time when Apple provides us with another trading opportunity but let’s wait until we see a clearer trend. Right now there is still too much “choppiness” going on in this one.

Oh yeah. The dude that Buster beat? Mike Tyson. The dude that beat Buster? Evander Holyfield.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Apple earnings
Posted in Company Commentary | No Comments »

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TERENCE
“Rick – Thanks for Dendreon – it has made all the headlines today! I missed on RIMM earlier, but I’ve been holding onto DNDN calls since 3rd week March. Of course today it all paid off today, as DNDN rocketed up.”

Archive for October, 2008

The Camel's Back is Hurting

Baidu's Profits Rise, Shares Fall

Casino Stocks Continue Slide

Potash Plummets

Apple Looking To Open Higher