April 2009

We've bought September puts in Google and Microsoft with the goal of spreading them off when the stocks fall. However, since we also expect the broad average to move somewhat higher in the meantime, we can leverage the bullish case by buying out-of-the-money calendar spreads in the Diamonds. Specifically, I am recommending that you buy

Better put aside yesterday's dour headline atop the front page of the Wall Street Journal, "Banks Ramp Up Foreclosures," since we need to be mindful of the fact that the stock  market is connected to the real world only in tenuous and highly unintuitive ways.  That's why I've provided a rally target for the Dow Industrials that is intended to stretch the permabear's imagination.

An ____ target flagged here earlier still looks like a good bet to produce a tradable top, although bears had better step aside if that Hidden Pivot is exceeded by more than a few points the first time it's touched. Thereafter, we'd be looking at a possible finishing stroke to as high as 8569

_______ UPDATE (11:10 a.m.) Google's $24 run-up over the last two days is evidence that the company cannot keep an earnings secret, but don't hold your breath waiting for the canny insiders who took advantage of it to be prosecuted. In any event, the surge so far has accomplished only what we'd expected all along, driving the stock to a peak this morning that lay within 40 cents of the 387.70 target we identified a couple of weeks ago. The September 270 puts traded down to 8.31, so we'll carry one officially for 8.40.

UPDATE (10:35 a.m.): The night owl trade worked like gangbusters, since risking as litle as $50 on the initial stop-loss would have returned as much as $700 per contract. The rally to 855.00 was halted by a minor pivot that looks like it eventually will be surmounted, but there is no evidence of any particular strength today. A Hidden Pivot at ____ can be used a a minimum upside target for now.

Our calendar-spread position has gained a mildly bearish bias with the approach of April expiration, so I'll recommend closing it out on any weakness this morning that brings Goldman down to 120 or lower. In such circumstances you should come away with a net gain of $1,200 or more,

With Tea Party protests erupting across the U.S., we wonder whether the anger will mutate into riots once taxes are actually raised. So far, though, and as far as we're aware, all of those extravagant stimulus packages have yet to cost Joe Taxpayer a dime.  How can this be, you ask, when the U.S. Government supposedly has gone trillions of dollars deeper in hock to pay for it all?  Some will explain that it's just "Buy Now, Pay Later!" on an epic scale.  But considering that no one has been taxed for all the goodies yet, one could almost believe that the money has been plucked from trees. And that sounds like win-win to us, as long as we don't dwell too heavily on the fact that it's just a dirty rotten lie.   Better that we should take the stinking lie and run with it - which is to say, believe, for just a moment, that even when all the costs of FDR's Second Coming kick in, most of us won't have to pay for it. Mr. Obama has explicitly promised this, saying he is only going to raise the taxes of five percent of American workers.  As for the remaining 95 percent, they supposedly will see their taxes fall, even as the filthy rich - i.e., anyone making more than $250k - shoulder the burden of a multi-trillion dollar public works program, "affordable" health care for everyone, TARP, and everything else on the Democrats' 40-year wish list.  Working Stiffs So then, what was yesterday's Tea Party all about? Here in Denver, the crowd looked like mostly working stiffs, not the kind of white-shoed muckety-mucks of the corporate world who will soon be footing the bill for Mr. Obama's fiscal lollapalooza. But there they were, placards and posters raised

We looked at option spread strategies as a way of leveraging targets in certain stocks, including Google and Microsoft. On the futures side, we saw that High Grade Copper's rally is well nigh unstoppable, but not so the E-Mini S&P, which will face daunting resistance not far above.

We've been bidding 7.60 for a September ___ put, predicated on a rally to ____, a Hidden Pivot target. The option price looks about right, since it was trading for 9.70 when the stock peaked the other day at 379.10. Since my DJIA projection implies another rally leg for the market, we should continue to bid for the put.