October 2007

This could turn out to be quite the week, what with Gold fixing to catapult past $800, crude oil within easy striking distance of $100/barrel, and the Fed cooking up a speedball (aka, a 'Belushi') to resuscitate credit addicts for a new round of binge buying. There was a time when Wall Street might have show signs of nervousness ahead of such tidings. But that would imply wild rallies and swoons intraday. In fact, what we got yesterday was a mild hot-air-balloon effect, wafting rather wilding. The DJIA was up 64 points, extending a rally begun a week earlier but without eating through any significant layers of supply. That was left for today or tomorrow, when bears presumably will be more vulnerable to a short-squeeze panic caused by the Fed. (Click on photo to enlarge) Why anyone should panic is beyond easy logic. After all, the Street has already priced in a 70 percent chance of a quarter-point easing. But on Wall Street, panic is fed not by the news per se, but by the fear that the usual idiots are going to overreact to the news. Can you imagine 'nothing' happening when word of a 25-basis-point easing crosses the tickertape? Of course not. And neither can anyone in the trading pits. In such circumstances, surviving to fight another day means making sure that you do 'something' before the next guy does. Since it's nearly impossible to imagine a sell-off on news of a rate cut, a buy-up seems all but ordained. But how about if there's a 50-basis-point cut? The Street was laying 5-to-1 against this a few days ago, but that could change at post time. Even so, there's still room for surprise. Suppose the stock market were to get pummeled this morning, turning shorts docile and therefore

We've long assumed that a collapsing dollar would take the global economy with it, but perhaps we were being too pessimistic? After all, the Dollar Index has fallen by 36 percent since 2002, but life goes on. Moreover, when the greenback slipped to historical new lows on Friday, hardly anyone seems to have noticed. Or rather, if they did notice, it was deemed reason to celebrate. The Dow Industrials shot up 135 points as stocks rose across-the-board -- especially precious metal shares, which may finally be starting to reflect fears that there is nothing to prevent the dollar from slipping still lower. Perhaps much lower. Those same fears evidently are running high at the NYMEX, where crude oil quotes have been ratcheting closer to the $100 mark each time the dollar stumbles. And where does the White House stand? In an interview last week, veep Cheney hinted that the government would take a hands-off attitude toward the US currency. "We do believe in a strong dollar,' he said, 'but we think that the key is that it be allowed to adjust based on market forces out there, and that's exactly what's happening." To speak of the dollar's wholesale collapse as an 'adjustment' is like saying that the fiery collapse of the Trade Towers was an adjustment to airborne traffic. Not only has the Dollar Index slipped to historical lows in recent days, it has entered an airless void on the charts (see above) without so much as a token word of support from anyone high up in the U.S. Government. 'He Who Panics First' Incidentally, it was none other than Larry Kudlow who conducted the interview with Cheney. We have always portrayed Kudlow as a guy who would say absolutely anything to get his face in front of a TV camera.

The Nasdaq index has been slithering sideways for nearly two weeks, so you might as well flip a coin if you're keen on betting which way stocks are finally going to break, up or down. And forget about forming any strong opinions before the close, since that's unlikely to produce better results than a coin-toss. We were forming a bearish opinion ourselves as Thursday's session drew to a close. Fortunately, a telephone distraction prevented our buying a bunch of QQQQ puts just before the bell. They'd have been goners moments later, when Microsoft announced a 23% jump in profits, supposedly on strong demand for Windows and Office software. The news caused the QQQQs, of which Microsoft is a key component, to leap exuberantly in after-hours trading, recouping in mere seconds all of the 67 cents they'd lost during the regular session. Had we bought the puts, they'd have shed 20% of their value before the trade was even confirmed -- just like a new car does when one drives it off the lot. That's what so challenging and stressful about trading: All too often, one gets to experience heart-stopping buyer's remorse mere seconds after a purchase or short sale. Vista or Rat Poison: Choose! Concerning Microsoft's apparent earning's triumph, there was some skepticism in the Rick's Picks chat room about its veracity. That the jump in revenues was attributed in part to hot sales of the Vista operating system seems curious, given that Vista is the most reviled and resisted mediocrity the company has ever shoved down PC users' throats. We should also mention that MSFT's fabulously successful Halo3 video game seems to be taking a heavy toll on the Xbox hardware. My son had to ship his unit back to the company for a warranty replacement after it quit

Although we began yesterday long some QQQ puts and intending to hold them till Armageddon, we had second thoughts when sellers lost heart early in the session. The Dow was down 200 points at the time, but the blue chip average was clearly struggling to fall any further. After exiting the puts for a modest profit, we went back to spectating. In retrospect, the only place where the world seemed to be ending was in Southern California, where wildfires were devouring high-end homes by the hundreds and forcing the biggest evacuation in the state's history. On the statistical front, there were hints of Armageddon, including an 8 percent drop in existing-home sales that doubled the dartboard estimates of alleged economists. But Wall Street hasn't paid much attention to such discouragements in recent years, and no one should have been surprised when investors imbibed this latest dose of statistical arsenic with no ill effects. And why not, since, as long as numbers like these keep flowing from the housing sector, the Fed will continue to do what it does best ' i.e., loosen like there's no tomorrow. So grim have the numbers been lately that the smart money is betting on a 100 percent chance of a cut in the federal funds rate next week. Evidently, the only question at the moment is whether the cut will be 25 basis points or 50. Either number will suit gold bugs just fine, since it's not going to take much more profligacy to push bulllion quotes past $800 for the first time since the late 1970s. It's been even longer than that since the Dollar Index went groping for bottom below 80, but U.S. investors seem inured to the insult of it by now. How else to explain a Dow Average that lies within 3.5%

Bosox caps and T-shirts are everywhere -- even here in Colorado, where Rockies fever has built to a crescendo. Of course, Yankees logos are everywhere too. But it's not the same thing. People wear Yankees caps and shirts for many reasons other than to advertise their loyalty to the team. For instance, Hillary Clinton once donned a Yankees cap to seem more human, or at least less Hillary-like. And my 12-year-old wears one because, even though he's never been to the Big Apple, he's heard that's where all the action is. But talk to someone wearing Boston's colors and you know you're talking to a die-hard Red Sox fan. Which they all are. Would any other kind of fan stick with a team that before the 2004 matchup against the Cardinals, had not produced a Series winner in 86 years? The Rockies haven't been around long enough to inspire that kind of loyalty, but they've been rapidly making up for lost time since August. The team has won 21 of its last 22 outings with some of the best defensive play in the glorious history of the game. Try to find a Tulowitzki jersey in Colorado and they are sold out. Playing shortstop, Tulo has not made an error in 44 games, although it's not for lack of opportunities. Almost nothing has gotten by him on the ground in post-season play, nor have any line drives less than ten feet high. His off-balance throws to first are poetry in motion, recalling the great Ozzie Smith, and with a .291 batting average and 99 RBI's he's a good bet for Rookie of the Year. TV's Secret Prayer Too bad television hasn't discovered the guy yet, because his story is just the thing the network flacks could use to drum up ratings for

Surely a stock market trading near record highs and apparently in love with the housing bust, a looming recession, a collapsing dollar, $100 oil and the prospect of Hillary Clinton as our next president can shrug off lousy third-quarter earnings, right?  We had our doubts, especially when we saw the S&P futures getting savaged Sunday night, continuing the earnings-induced selloff that lopped 367 points from the Dow Industrial Average on Friday. It was shortly before midnight, and the E-Mini S&P contract was down fourteen points, implying the Indoos would start the new week a hundred points in the hole. And so they did. But that was as low as the blue chip average went, and by day's end it had worked its way back to a modest 45-point gain. Whatta guy! We were prepared to take partial profits on a put position in the QQQQs, but not at the wishy-washy 52.02 downside target that went out to Rick's Picks subscribers over the weekend. While that target was commensurate with a soft opening, we were looking for far worse than softness. An avalanche, maybe. We therefore advised as follows: 'The nearest Hidden Pivot support lies at 52.02, but let's play fast and loose this morning and not sell any [of our November 52 put options] until the Cubes reach visually obvious support down around 51.34.' Fast and loose, indeed. The QQQQs trampolined off 52.02 exactly and never looked back. With Apple and Google providing the push, perhaps it is no longer even possible for the QQQQs to decline in any significant way? Apple was up $4 most of the day, Google nearly $10. What's more, it turns out AAPL shares were just getting warmed up. After the close, in an announcement that could have surprised no one, the company reported surging profits and revenues from iPod

Inches from despair, battered and bruised by a stock market maniacally on the rise, we'd nearly given up hope of enjoying a 'fun' expiration day any time soon. Boy, were we ever wrong! The Dow took an exhilarating 370-point plunge on Friday as October puts and calls breathed their last ' and for a few glorious hours all seemed right with the world. Fortunately, we weren't just idle spectators, having made a bearish bet late in the day Thursday. It wasn't a Hidden Pivot gambit, just a hunch that the QQQs lacked the cohones to take on some daunting peaks recorded in the last week or so, including the one just before October 11's entertaining cliff-dive. With the Cubes hovering just beneath those highs toward the end of Thursday' session, we decided to take our chances, buying some November 52 puts @ 0.60. The trade was not an official 'Tout,' just an idea tossed out amidst the usual shuck-and-jive of the Rick's Picks chat room. Much to our surprise, on entering the room Friday morning we discovered that several subscribers had been right behind us buying the puts. Naturally, they were feeling pretty feisty, stocks having opened ugly that morning. Lo, by day's end our puts had doubled in value. We decided to hold onto half of them in case Friday's sell-off proves to be just a warm-up for a good-old-fashioned October avalanche. Google, of course, was the turd in the punchbowl, gapping up nearly $20 on the opening and holding onto fully half of those gains until the final minutes of the session. However, we took some satisfaction in watching those who held positions in the stock at the close kick, claw, punch and bite each other as they struggled to manipulate GOOG's settlement price ahead of the weekend. The

What the hell do Apple and Google care whether oil hits $100 a barrel? The shares of both companies pushed intrepidly higher yesterday even as the price of crude approached $90 for the first time. If quotes were eventually to reach $300 a barrel, we're sure stock market bulls would find umpteen reasons to be optimistic about it. To help them out, here's our Top Ten List of Reasons Why $300-a-Barrel Oil Will Be Good for America: 10. After Iraq, invading oil-rich Venezuela will be a piece of cake. 9. Someone will have to invent a car that runs on all the stuff we throw away, like old couches and asbestos. 8. Hearing of elderly people freezing in their homes, the terrorists will feel sorry for us and make amends for 9/11 by donating blankets and cans of Sterno. 7. Impress your date by taking her to...Jiffy Lube! 6. With driving less affordable, we'll get to see more of the world than ever via Google Earth. 5. Jed Clampett will have plenty enough to see that we're all taken care of. 4. You can kiss congested airports and crowded skies good-bye! 3. Tanker spills will attract hoards of looters, eliminating the usual clean-up expenses and headaches. 2. We'll all get rich gouging Arab tourists, who won't think twice about paying $500 for a hot dog and a Coke. ...and the number one reason $300-a-barrel oil will be good for America: 1. Time to break out those strategic reserves and PARTY!! *** Be Your Own Guru Take a look at the chart below. See anything that might have led you to predict that December Crude would make a very tradable top at 87.97? Would you like to learn how to forecast stocks and commodities as accurately yourself? Are you tired of

Even with a crystal ball it would be tough to make money trading options on such popular vehicles as the Diamonds and QQQQs. That's because, when you are buying puts and calls on these securities, you are trading mainly against very smart machines, not people. If you were to monitor price fluctuations in QQQQ and Diamond (DIA) puts and calls very closely for a day, you might come away with the impression that they were being jockeyed around by traders who could see a minute or two into the future. In fact, a computer algorithm is doing the work, and it can run circles around most human traders. (Click on chart to enlarge) To take an example, let's suppose you are trading DIA options on your desktop PC and notice there are a bunch of November 138 calls offered at 2.96 with the underlying trading at 138.27. Let's also assume there's trendline resistance at exactly 138.27, and that if the Diamonds exceed that price by even a penny, you are planning to 'buy the breakout' by pouncing on the Nov 138 calls. The breakout occurs, and you react with lightning speed, hitting the 'buy call options' button on your computer a split second after the 138.28 print. Alas, the options are no longer offered at 2.96, but for 3.01 ' too pricey to offer any edge. How Smart Art They? Actually, the neural network program that removed the 2.96 offer from harm's way (harm for the seller, that is) is far more sophisticated, even, than that. Consider another scenario: You were planning to jump on the Nov 138 calls if there was bullish news on the tape concerning some speech Treasury Secretary Paulson was giving at that moment at a Kiwanis luncheon in Los Angeles. But even if you had