bloggers were all over the market's moves this past week, and this weekend, we'd like to share the Best of the Blogs with
readers. As always, these posts represent the best our writers offer each trading day.
This week, take a look at
larger look at what's keeping oil prices higher,
on the dangers of dogmatic thinking,
on options kung fu; and
parsing of what the latest release of FOMC minutes says about housing.
Cramer's Blog: What Ultimately Keeps Oil Headed Higher
Originally published 2/24/2006 2:57 PM EST
There are few givens in this world. One of them is that there is a radical strain of one of the world's three religions that seems to have as part of its overall agenda the destruction of key oil facilities that are crucial to the price of oil until we can create a reasonable alternative to oil. If you don't believe me about this, please read a column by
The New York Times'
Tom Friedman (any one of his, I am afraid to admit).
Because of this obsession with the destruction of the facilities, and the relative ease with which they are knocked out of commission -- consider that before the invasion in Iraq, pathetic groups of pipes and rigs produced far more than now, simply because the ease of sabotage -- I believe that oil will stay high for the foreseeable future. I actually see -- again, this is my view -- the radicals in ascendance here, as we seem to enjoy a relative Munich state with them, circa 1938, with us eager to play the role of British Prime Minister Neville Chamberlain.
You can argue with it. You can argue against it. Frankly, from the point of view of investing, I just believe that many of the analysts and investors simply refuse to take into account that there is a worldwide movement to destroy these facilities, a kind of rolling Petrolnacht that seems separately odious but to this observer, actually may be well-planned. That's why I don't really care about domestic consumption or inventory data, other than to create buying opportunities for oil.
I also believe that the oil service stocks remain a defensive and
play for the inevitable government realization -- this one or the next one -- that the imperative is to become, if not self-sufficient, at least less at the mercy of the radical elements, like in the Arctic or something.
What makes me feel all of this is the current debate over the ports, where it is clear that someone, at least some people, are getting their hands around the notion of a larger threat that should have been obvious to anyone who takes a cursory glance at the
, which, quite obviously
in this administration does.
Not to be too cynical, but today, I wanted to buy more
Action Alerts PLUS because that company both rebuilds busted infrastructure in bad places, a must given the destruction I see coming, and is an expert at oil services in hard-to-drill places, again, something I see coming.
My show, my whole business life is dedicated to
finding the bull market wherever it is, and the best, most vibrant, and perhaps most long-lived bull market is the one being created nearly every day by the radical elements that also happen to have control of oil's carotid artery. In other words, higher prices still beckon
At the time of publication, Cramer was long Halliburton.
Rev Shark's Diary: Curb Your Dogmatic Thinking
Originally published 2/21/2006 9:29 AM EST
"People think that if you have a huge appetite, then you'll be better at it. But actually, it's how you confront the food that is brought to you. You have to be mentally and psychologically prepared."
-- Takeru Kobayashi.
Kobayashi, who weighs 132 pounds, dominates the "sport" of competitive eating. He holds the record of 53.5 hot dogs and buns in 12 minutes and has won the Nathan's Famous Hot Dog easting contest five times.
There sure seem to be an awful lot of hungry bears with an appetite for downside out there. Although the indices have been acting well, there are surprisingly few folks willing to admit to having an aggressive bullish stance. Even the
Wall Street Journal
has a headline in its Money & Investing section this morning that reads, Pros to Investors: Play Defense.
Barry Ritholtz posted an interview with one such pro from Lowry's Reports that is a particularly good example of how many are expecting a sharp fall in the near future.
What is especially striking is the thick atmosphere of general unease about the market. Even those who aren't concerned about the immediate future seem to be worried that we are due for a severe drop very soon and that we have to proceed with extreme caution here. The primary bearish thesis is pretty simple to understand: this move is getting old and inflation is going to be a problem.
The bears are indeed correct that there are some troubling signs out there, particularly in the lack of good market leadership. Big-cap technology looks very poor with stocks like
(INTC:Nasdaq) all in poor technical shape. Even with oil finally pulling back, we aren't see enough rotation into other groups to really support the idea that the market is undergoing a change of character with new leadership emerging.
Like a competitive eater, we have to forgot about our appetite for one market direction or the other and be prepared mentally and psychologically to deal with market developments. It is particularly important right now not to be dogmatic about the market. This is not the time to be closeminded about how the market may develop. The bearish case is pretty easy to understand, although it is not all that clear. It boils down to the "S" word: Stagflation. A slowing economy with inflationary pressures, which everyone knows is bad for stocks.
The bulls case is less clear. There is hope that inflationary fears will subside and the
will move to the sidelines. A fall in energy prices would be a good start, but even after the recent struggles in the sector, there aren't many who are looking for oil and gas to continue to downtrend.
The biggest positive the bulls have going for them is this great unease about the overall market. The best thing that could happen for the bulls is that we just continue to hang tough for a while. If we don't roll over like many are expecting, there will be a rush to reposition, and that could cause some excitement.
Whether you have an appetite for downside or upside action, the key right now is to be mentally prepared for either to develop. We are at an interesting juncture at the moment, and if you wish to devour some profits, it's going to take more than hunger to do it.
We have positive action to kick off the short week. Europe and Japan were both higher. Oil is up on the unrest in Nigeria.
minutes are due this afternoon, and that is likely to give us a jiggle. We also have the CPI report Wednesday morning, which will be quite important.
At the time of publication, Rev Shark had no positions in the stocks mentioned.James "Rev Shark" De Porre is a self-taught trader who primarily trades for his own account from his home on Anna Maria Island, Fla. He is a member of the Michigan Bar Association and a former tax attorney and CPA. De Porre holds business and law degrees from the University of Michigan. He was formerly the host of America Online's The Shark Attack and presently operates SuperTraders.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
Steve Smith's Blog: Options Kung Fu
Originally published 2/21/2006 2:45 PM EST
In trading, it often pays to be reactive rather than predictive. This doesn't mean being less aggressive, but it can be more effective to use the forces already in motion to your advantage rather than setting up a position that might put you on your heels. I'm not a student of martial arts, but I did get to stay up late to watch
Kung Fu, so I know you should wait for your opponent to lunge at you and then its easy to grab his arm and propel him through the saloon doors.
One strategy that is always worth looking at is the "broken stock" play. When shares gap down, on earnings or other bad news, consider selling the calls. The gap down is the drunken lunge that opens up a number of possibilities: selling options with relatively high implied, fundamental and technical momentum of further selling pressure, plus the trade comes with a well-defined exit point. If the stock closes above the range defined in the first hour of trading, consider that akin to the lout pulling a gun and just walk away.
An example of a broken stock today is
Carnival Cruise Lines
, which is down some $2.50, or 4%, to $51.20 after its earnings report. One can sell the March $52.50 call for about 70 cents -- that's an I.V. of just 21%, which is low on an absolute basis but relatively high for this stock. The stock now has major resistance at $52, so a close above that price could be used as a stop for covering.
provides a recent example of how this strategy can work effectively. On Friday, the stock reported disappointing earnings (for the umpteenth time) and revealed its CEO's resume didn't accurately reflect his level of higher education, and the stock gapped down some 10% to $19 per share. Early in the day you could have sold the March $20 calls for around 70 cents. A look at a 10-minute chart shows that Friday's "real" trading high was $20 -- the open print was $20.75, but not much traded above $20. So if the stock closes or spends more than an hour trading above that level, it becomes a hint it's time to leave.
Today the stock received some upgrades on the theory that "all the bad news is baked in" and it initially traded as high as $19.95. The call traded as high as 60 cents, but now with the stock lower on the day, the call is down to 35 cents.
Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. To read more of Steve Smith's options ideas take a free trial to TheStreet.com Options Alerts.
Tony Crescenzi's Blog: FOMC Minutes Show Housing Concern
Originally published 2/21/2006 3:23 PM EST
Chairman Ben Bernanke's recent testimony before Congress was nearly identical to the minutes of the Jan. 31 FOMC meeting. This is as it should be; the Fed chairman's semiannual monetary policy reports to Congress are supposed to reflect the views of the entire FOMC, not of the chairman alone. Moreover, Bernanke's testimony was probably prepared by the Fed's staff. Nearly line by line, the minutes read that closely to Bernanke's testimony, with few -- but no less important -- differences.
For example, where Bernanke's outlook for the housing sector was for "a leveling out or a modest softening of housing activity," the minutes elaborated to show a deeper concern among some members of the FOMC:
In some areas, home price appreciation reportedly had slowed noticeably, highlighting the risks to aggregate demand of a pullback in the housing sector. For instance, the effects of a leveling out of housing wealth on the saving rate were difficult to predict, but, in the view of some, potentially sizable.
Bernanke also sounded sanguine with respect to the financial markets, but the minutes reveal an important concern over the potential for a widening of credit spreads:
The recent strength in equity markets and the low prevailing term premiums and bond spreads perhaps reflected market assessments that economic risks were lower than usual, as well as strong demands for longer-term assets and an ample supply of liquidity. The possibility that term premiums and credit spreads could return to more typical settings represented a downside risk for interest-sensitive components of aggregate demand.
On the inflation front, Bernanke told us that the FOMC expected the inflation rate for 2006 would be 2% for the core personal consumption expenditures deflator. Bernanke did not add what the minutes revealed with respect to the near-term outlook:
Most participants expected core inflation to move up slightly in the near term, reflecting some pass-through of increased energy and other commodity prices.
That statement suggests that the Fed expects the core PCE to move above 2% in the first half of 2006.
So, the most important aspect of the minutes is probably the similarity to Bernanke's testimony. With Alan Greenspan, the similarities weren't always as evident; this change possibly reflects Bernanke's efforts at transparency. The second most important aspect is the view by some members that there could be a sizable impact on consumer spending if the housing market continues to level out.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.
George Moriarty is managing editor of RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
to send him an email.