Monday, May 05, 2008

A new week, the beat goes on, and on...

OK< we'll see, but as I stated last week here the week after FOMC week is almost always a reversal, at least early in the week, of the action the week before. Since we rallied post-FOMC it made/makes sense we take a pause. It'll be interesting to see how this week plays out, there's not much news, only some earnings that mean something. CSCO reports Tuesday after the close. I have no insight into CSCO earnings, so I won't even dain to make a prediction.

MSFT walking away from YHOO deal caught a lot of people by surprise, including me, but thats why we don't try to play seer. Market was annoyed by the news and it contributed to the days action, though today was the LOWEST volume of the year, which is bullish near term as we pulled back on lower volume then we went up last week. That's usually bullish.

I have some insights I'm going to share with clients tomorrow about the way this earnings season has played out and how I think it should help us make some money moving forward. Suffice to say, the hot get hotter. It's been that way for a while now, but its becoming increasing apparent that this is a very narrow market. Financials led the way down today while momentum stocks like GOOG, BIDU and all the AGS, the hottest group on the planet were on fire once again.

Off topic, but I LOVE Corn short here. Symbol is /zcn8 for anyone who trades futures. The issue with playing futures like this is that if you're going to ride it its hard to do unless you don't use margin, or use very little. Otherwise you end up getting whipsawed again and again. Trust me, I know, I've had it happen a few times. Sucks when it happens and then you are right, but that's the same with anything in life, I guess.

Meanwhile, I think in this market it pays to be mostly cash, still. So, that's the way we're playing it. Some interesting earnings this week CSCO, PCLN. PCLN has beaten and guided higher last two quarters and stock has zoomed, but its been downgraded lately so we'll see if it beats again. The concern is that with the airlines consolidating the online bookers will lose some/a lot of business. Guess we'll find out.

OK, so back to corn.

About a year ago I said CORN would rock, which it clearly has. It's gone at least 175%ish in that time. I thought Corn would go nuts because of ETHANOL. Farmers were given huge subsidaries to grow corn, so much so that corn "land" meaning they are using land previously earmarked for other crops just to get the kickbacks.

OK, so fast forward to the current state of affairs. A REPUBLICAN Congresswoman is submitting a proposal to freeze the plan on Ethanol. Now Bush and O'Bama REALLY stupidly support Ethanol. Ethanol is a very very very poor idea, it was a political stop-gap and it has no real benefits to our country. What it does is line the pockets of some politicians (the farmers have a VERY powerful lobby), and the farmers who are taking advantage of these ludicrous benefits.

Further still, there is a supposed food crisis in many parts of the world, and as the price of food rises it makes it more difficult for the poor to eat.

Frankly, its rather disgusting. Now today several countries want to have a RICE CARTEL!
It's insane, truly insane. This isn't oil, you can't eat oil. This is FOOD. You don't have cartel's on FOOD! Insanity. Look, I like making money as much as the next dude or dudess, but not if I'm driving people to their graves out of starvation.

Lest I digress, I believe that there is going to be a backlash on Ethanol. Anyone with 1/2 a brain knows Ethanol is not any answer to our reliance on oil. Like anything else (look at Real Estate) there's now a glut of corn out there. Drive the midwest and you tell me if there is a corn shortage, its fantasy. At least it is today, Ethanol, if the current bills were to stay put, would need almost all the corn grown to support it each year. So, THEN there would be a true food shortage. And, as you take away land that was used for other food, and for cotton and other commodities, then you create a situation where you have a shortage of EVERYTHING. And, that, my friends, is just another example of how lobbies in this country are dangerous. When one group has the power to buy legislation, it creates these kinds of situations that put the vast majority at risk.

In the meantime, I do think a backlash is coming shortly and I think if ANYTHING happens with ethanol, in terms of a pause, then corn will crumble pretty fast. I think corn would fall back to the 400 to 450 area at best, and potentially a lot further. Corn was the low 400s to start this year, so going back there, or more, is pretty easy if there is even a hint that ethanol production is going to slow.

Of course, if the current plan ploughs through then that's another story, but I really can't see "us" being that stupid. Never mind, I guess its possible, ok, you're right!

OK, so if you have a mind to short corn, I would use $650 as a very loose stop, which is why you can't leverage it too much, and manage it as/if it goes your way. I assume most people here aren't taking this trade, but I am throwing it out there. I think near term corn should see $550 area minimum to the downside, but keep in mind that like oil and other commodities these things are all over the place and they get squeezed all the time. Corn could open limit up one day, or two or three if the news goes against you and you could get CRUSHED. So, keep that in mind.

Anyhow, that's it for tonight, I'm on a roll as far as the ridiculousness of some things in our society. This is one of them thats a real thorn in the side because it has to do with feeding people who don't have the means to support themselves, and greed in taking advantage of them. It's easy for most of us to not "connect" with our fellows when we don't see them around us. It's kinda like a video game, it dehumanizes the people we see on TV starving, it makes it hard to relate. It's quite sad. I like to take a moment or two a day and throw some pleasant thoughts and well wishes out there for those that struggle. We are very lucky in this country, most of us, and certainly most anyone who is reading this now. We don't have to worry, knock on wood, about these types of things. I don't want to get all hokey, but I do think things like Karma make sense. What goes around usually does, in my experience, come around. We often make decisions without really looking at the impact on the world around us. Think about it, and have a good night!

Happy Trading on Tuesday!


Michael "Waxie" Parness


rob in texas said...

rob in texas im enjoying your posts mainly your dating exit strategys my women recently passed away from cancer so its a wee bit quiet around here but thats another story im holding 1 110 rimm call up 8 bills 1 drys 80 call up 4 bills and watched stock split dvd and own 1 bucy 135 call looking for 140 do you think that could happen ive traded options off and on for 20 years but since you flashed me 1 or 2k i think i might be ready to drag that pony out of the barn and try riding him again thanks

Jon said...

I follow many blogs, market participants, etc. and you've been the most right about the market. I like that you're no BS and tell it like it is.

Best Regards

Waxie said...

Thank you, gents.

hang in there, rob, my condolences, thats rough.

Rob, come to the options seminar next week, you'll enjoy it, promise.

Jon, thanks! Rock on!