After two bouts of opening plays right in front of a market drop, hopefully the third time will be more successful.

The markets traded sideways today as the waited for the next shoe to drop in China but it never came. At least it did not come during market hours. Late tonight China's Premier said the country would act to restrain prices "when necessary" and "increase the supply of commodities" to lessen inflation. This was a 180 degree reversal from the harsh words earlier in the week.

The key to this statement is the "when necessary" clause. That is shorthand government speak for "calm down, we did not say we were going to rain destruction on the markets." That is the calmer, gentler way of saying "inflation is rising but it is not a big deal just yet."

Secondly instead of price fixing of commodities the government pledged to increase supplies in the country so that prices would ease. China keeps large inventory levels of food stocks on hand because of the numerous natural disasters that seem to constantly befall the country. They sell down these supplies when necessary to augment those available in the market. The only way China can increase the supply of commodities like wheat, corn, cotton, etc, is to BUY THEM and put them into inventory for future use.

This could be the statement that solves all the markets ills. Overnight futures are in rally mode and the dollar is declining. Obviously there is a lot of darkness before morning but I am encouraged.

Despite the Dow's 15-point decline today the market held its ground. Volume was light but advancers outweighed decliners. If the overnight sentiment holds we could have a decent market day on Thursday. The shorts have backed up the truck on this decline and a decent news surprise like China's statement could catch them flat-footed and a new squeeze begin.

Jim Brown



Current Portfolio


No Open Positions


Current Position Changes


None


New Recommendations


TCK - Teck Resources $47.50

Teck is a miner of metallurgical coal, copper and zinc as well as other metals and fertilizer. With the fall of the dollar their fortunes have been improving. However, last weeks rebound in the dollar did not cause a corresponding depression in Teck. Their relative strength suggests they will do well in a positive market.

Enter this trade only if the S&P and TCK are positive

Sell Short TCK Dec $44 Put (TCK10X4400) currently $1.29, stop $46.25

Chart of TCK


FTI - FMC Technologies $77.47

FMC Technologies, Inc. (FMC Technologies) is a global provider of technology solutions for the energy industry. The Company designs, manufactures and services systems and products, such as subsea production and processing systems, surface wellhead production systems, high-pressure fluid control equipment, measurement solutions, and marine loading systems for the oil and gas industry.

FTI is showing good relative strength and I am expecting oil prices to rebound over the next several days once the current contract expires on Friday.

Enter this trade only if the S&P and FTI are positive

Sell Short FTI Dec $75 Put (FTI10X7500) currently $2.00, stop $75.75

Chart of FTI


NOV - National Oilwell Varco $59.02

National Oilwell Varco, Inc. is provider of equipment and components used in oil and gas drilling and production operations, oilfield services and supply chain integration services to the upstream oil and gas industry.

NOV is suffering from an embarrassment of riches. The company has an increasing backlog of orders and has won the contract to outfit 22 oil rigs/platforms from Petrobras. Strong relative strength!

Enter this trade only if the S&P and NOV are positive

Sell Short NOV Dec $55 Put (NOV10X5500) currently $.99, stop $57.25

Chart of NOV


CREE - Cree Inc $56.26

Cree, Inc. (Cree) develops and manufactures semiconductor materials and devices primarily based on silicon carbide, gallium nitride and related compounds. It focuses its expertise in SiC and GaN on light emitting diode (LED) products. It also develops power and radio frequency (RF) products. Cree derives the largest portion of its revenue from the sales of its LED products, which includes LED components, LED chips, LED lighting products and SiC wafers.

Cree closed very close to a new three month high on Wednesday. Strong relative strength!

Enter this trade only if the S&P and CREE are positive

Sell Short CREE Dec $52.50 Put (CREE10X5250) currently $1.43, stop $54.50

Chart of CREE


MOS - Mosaic Co $67.42

The Mosaic Company is a producer and marketer of concentrated phosphate and potash crop nutrients for the global agriculture industry.

Mosaic took a big drop when BHP backed out of the Potash deal and that drop intensified when China started to talk about plant commodities. This should reverse now that China is planning to buy more crop food. Potash is a depleting resource and Mosaic is the second largest producer. Support is $65.25.

Enter this trade only if the S&P and MOS are positive

Sell Short MOS Dec $62.50 Put (MOS10X6250) currently $1.42, stop $65.00

Chart of MOS


New Long Term Recommendations


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Aggressive Recommendations


None yet. Waiting for market to stabilize.


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Margin Requirements:

There are several different formulas for determining margin requirements for naked put writing. These are normally broker specific and some can require larger margin requirements than others.

Here is the most common margin calculation for naked puts.

100% of the option premium + ((20% of the Underlying Market Value) - (OTM Value))

For simplicity of calculation simply use 20% of the underlying stock price and you will always be safe. ($25 stock * 20% = $5 margin)