LEAPS Trader Update
Thank You Ben Bernanke
Our fearless Fed head took to the podium today with a get-tough speech on inflation. The markets, already in decline, accelerated to the downside as the pendulum swung back to an expected rate hike in June. The Fed funds futures had fallen to as little as 40% chance of a hike after last weeks economic news but after the Bernanke speech that chance jumped back into the 80% range where it had been before last weeks data. The Bernanke speech and fear in anticipation of the speech was credited with much of the market drop. Bernanke has to seize control of the markets perceptions of Fed intentions. As I have discussed before he slipped up early in his new position and now must act even tougher to regain his credibility.
The oil market saw Iran's supreme leader threaten the world with higher energy prices if the U.S. attacked Iran or continued to pressure it over its nuclear ambitions. Oil prices spiked to $73.45 intraday but the market sell off pushed prices lower by day's end.
We saw strong selling in commodity stocks and emerging markets just like we saw two weeks ago. This is very disconcerting and suggests there is still an unknown factor causing ripples in the global market. I hesitate to believe it is just profit taking given the scope and breadth of the sell off. I don't believe it is a flight to quality since bonds and gold also sold off today.
Even after today's -199 beating on the Dow I continue to believe oil will recover and move higher. We heard several sound bites today about an oil glut but with Iran's leader warning that Iran can close the Strait of Hormuz that glut could evaporate in a single day. As the war of words continues to escalate I think oil prices will follow.
The sell off today gave us a terrific entry point we were looking for in Baker Hughes. I was hoping for a pullback and todays -$3.40 drop fell right to support where it closed the day. I am recommending an entry here with additional support at $83.
BHI - $85.24 - Baker Hughes Intl
Buy Jan $95 Call BHI-AS currently $6.20