Option Investor
Commentary

Kiss Oil Goodbye

HAVING TROUBLE PRINTING?
Printer friendly version

The two-day dip in oil stocks as the calendar turned over was brief and shallow. Visions of real profit taking giving us an entry into a couple energy positions were dashed by the comments from the OPEC Secretary about $80 oil. Immediately stocks roared off to new highs as out entry targets were left in the dust.

However, there was one good side to the flurry of oil news. Chevron Texaco was rumored to be on the acquisition trail for Unocal. CVX stock was not exactly hammered for a loss but it did fail to follow the others higher and that may be the best entry we are going to get. I am going to hold my nose and jump on the train this weekend. Chevron is cash rich, has very little debt and trades at a PE of 11. Even if they did bid high for Unocal that oil in the ground will be worth about twice today's price before they can get it out.

The Jobs report was favorable to bonds and that knocked interest rates back off their highs and gave new life to the homebuilders. TOL and RYL both returned to their highs, which means a ripe PE of 10 for TOL. The homebuilders should be seen as land banks and just like oil they are not making any new land.

Unfortunately the tech sector is feeling unloved with all the money going to commodities and housing. Our tech plays are languishing and with Intel and the three dwarfs, TXN, XLNX and ALTR, all issuing mid quarter updates next week it may be time to consider an exit. I am going to drop the LEAP call on IBM and continue holding the April $90 put.

I dropped the Apple Leap Put idea last week after getting several negative emails and AAPL fell from $44.50 to $41.25 on Thursday. Friday saw a small rebound but the trend may have changed. I had several readers' email that they had taken the play anyway and were looking for guidance on an exit. I would exit on a touch of the 100-day average currently $33 but it might converge with the price just over $35. Just keep an eye on it.

I am still hesitant to add any new plays given the weakness in the Nasdaq. The stocks that I would like to buy are too high and need to pull back and the tech sector is still telegraphing weakness ahead. I will continue to be selective until the time is right and then back up the truck.

Leaps Trader Commentary Archives