MA over? USO on the move.

Mastercard came out today with great numbers, but lowered guidance. As with many earnings plays this season, it is getting killed. The CEO's comments were slightly vague as to why margins might be lower in 2007. I can only speculate that it is increasing competition from Visa and online merchants that are putting pressures on the company. Otherwise, MA would have pricing power and could keep things rolling next year. I think this story is dead for the time being.

In the spirit of going with what is working now, commodities are moving extremely nicely. I am adding to my USO position in the wake of the breakout over $60. I am also looking for an upside breakout in OIH, which has been flat to trending up recently. I like it here. I'm also still long RIO and GLD. Allegheny's chart (ATI) is looking strong and I may move in here as well.

UA - no catalyst, double down on USO breakout

I've reconsidered my UA long trade and exited today with a small loss. The miss was due to investment in growth, yes, but lack of upside surprise also removes the catalyst for the stock to go higher. The story isn't there at the moment. I still like the stock overall but I think its dead money for now and there will be a better entry point.

I like the oil breakout here, and I think we have another 10% move to the upside on the way. I've increased my long.

UA on weakness

UnderArmour, the red-hot sports apparel manufacturer got hit today because they missed Wall Street profitability estimates. I looked at the report though and I liked what I saw, despite the miss. Revenues were solidly higher and growth seems to be accelerating. There might be some downward pressure on margins because of the new businesses and apparel lines that they are entering. But this should be temporary and I think the strength of the brand will propel the company solidly higher.

I stepped in here on weakness and will continue to do so.

Nice move in USO

Nice move in the oil patch yesterday, up 5%! That is the largest move in one day in 16 months. Oil just kept going up, breaking through key resistance levels. I am still long here and will add on dips. I think oil moves solidly higher.

My gold position is also doing nicely. I like being in the commodities right now, since equities look toppy and earnings reports are coming in mixed.

long oil, long GPS

Moving into a USO long position today. It looks like we've hit some resistance on the downside here around $45 and I like the chances for an upside move.

Also, I opened a longer-term speculative position on a PE buyout of GPS (Gap Stores). I bought a bunch of Jun 2007 calls at $22.50 for $0.35 each. If GPS gets taken out before then, you are looking at $2-3 upside, which is basically a 10:1 shot. I like those odds!

Not stepping in yet

A little dead-cat bounce perhaps after some brutally down days, and crushing weakness in the techs. I think we will see a day or two of strength here after some ostensibly encouraging earnings reports (TXN). However I'm not yet ready to buy with any conviction. I'm opening a new position in DNA as my healthcare play of choice, since I think biotech will get a lot of attention in 2007, and it's a great story. DNA has been executing but has had a lid on it due to fears about the new Democratic congress, and general outperformance in tech. Now that tech is weaker, this money's got to go somewhere. I think it'll be biotech.

In metals, RIO is doing extremely well today and looks strong going forward. I sidelined RIO a bit too early and have missed a nice upside move. Since RIO is one of the only things solidly working in this market, I will look to reopen when it comes in.

Lastly, YHOO reports after the close today. They have rolled out the new Panama advertising system to about 30% of their advertisers, to generally positive reviews. They should have enough data to give meaningful guidance for 2007, and I think Semel will raise it. Switching to a more rational pricing system is an obvious change, and they should have strong indications of how it will perform. Even if Semel does not raise guidance here, I think the downside is limited. Most everyone thinks that Yahoo can't execute at all and the pessimism is rampant. Tepid numbers would not harm the stock too much.

Overall though, I am not stepping firmly into this market just yet. I think there is quite a bit of downside through the bleak days of February, especially if a rate cut gets taken firmly off the table.

three and out

Three earnings disappointments. AAPL came out with absolute blowout numbers, but the stock goes down because the guidance for Q2 was below expectations. MER is up a bit, but not enough to recover the volatility compression in the options. Same deal with CAL.

Back to the drawing board. It may not make sense to trade long options during expiration week going forward.

continental, merrill and apple

Three earnings reports coming this week, around Wednesday. Here are my strategies for each:

* CAL. Up strongly today and I don't want to buy into this rally here. If AMR and LUV report disappointing earnings tomorrow, I think CAL will get hit and present a buying opportunity. If not, I am comfortable letting this one go. I am not interested in chasing.

* MER. Merrill is poised to post a strong number here and I am buying weakness. I opened a position today and will build it tomorrow if it is still soft.

* AAPL. Opened a position on Friday that is solidly in the money today. I will add some more if there is weakness tomorrow, expecting a blowout quarter.

rally mode

Core holdings portfolio is very strong today! Google, Goldman Sachs, Mastercard, Level III are all moving solidly higher. Lowe's and USG are participating too.

Two moves of note:

1. sidelined RIO because of overall commodity weakness. I want to wait until they hit bottom before moving in there.

2. Closed out all AAPL positions. I would like to re-enter before earnings one last time, then revisit in March on weakness.

Two areas that I'm thinking about going forward:

1. LOW and USG are both levered to housing. One is a retail play and one is a raw materials play. I may try to exit one of these in the coming days, for diversification.

2. Cheap oil. There should be some interesting ways to play plummeting oil right now. Maybe back into KMB for a while?

3. ATI looks nice right now. It's a commodity play in a solidly booming industry (airlines), and it is off its highs. I may move in here.

AAPL does not disappoint!

My call yesterday was pretty dead on for AAPL! The phone came out, and we got our $8 upside move. I closed everything out late in the day for a big score. Not as big as if I had left my entire position on the table. But if there was no phone it would have been game over for the Rhombus Team. That would be undisciplined. Overall, it was a great trade!

Oddly enough now that I'm cashed out I feel a little strange, like there is something missing from my life.

Going forward, I like AAPL ahead of Q4 earnings on the 17th. Between now and then, AAPL will probably come in and retest some lows. The phone is a massive leap forward for technology and it is a ridiculously amazing product. But, in actuality, it will barely move the company's earnings for 07. And there are all sorts of issues with adoption - Cingular only, super-high price point, etc. I think it will blow any estimates away, but between here and June there may be uncertainty and panic about whether a $500 phone can actually sell.

Those panicky times will be buying opportunities.

MacWorld

Seems like forever ago that I opened up my "run to Macworld" trade. AAPL has done a lot of moving in both directions but ended up today around $86. I closed out the bulk of my position this morning with a nice profit. I set up a 95/100 Jan bull spread in case there is a phone tomorrow. I think the downside is limited. The upside could be $8-10, since estimates don't include a phone at all.

Jobs' keynote is at 9am, so stay tuned. Either way I will close out the position and re-enter next week ahead of earnings.

Then a much deserved break from owning Apple options!

AAPL exit plan

Apple is looking great so far into Macworld. Today we are holding $85 nicely. If we stay here, we could see a run to the close and gap up tomorrow getting close to resistance at $90. I am looking to unwind the bulk of my speculative position in Jan 85s by the EOD Monday, so I'm selling into strength whenever possible. I'll sell aggressively anywhere above $90.

I have been doing a lot of research into Apple's iTV and iPhone product announcements for Macworld next week. I think they are both game changers. Personally, I would buy both as soon as I could get my hands on them (although it might be tough to give up the Blackberry). With that in mind, I am going to leave some of my more speculative Jan 95s on the table through Jobs' keynote and sell into any strength that comes out of the announcements.

ideas for 2007

2007 looks to be a great year for markets, if we do get some rate-cutting by the Fed. The big question that markets will likely have is when the rate cutting cycle will begin. This could introduce some uncertainty (and volatility) into things in the early part of the year.

With that thesis in mind, here is a summary of what we'll be doing over the next few sessions to get positioned:

* GS. Phenomenal earnings, best of breed investment bank, lower interest rates and a rising stock market should keep GS flying high this year.

* RIO. Growth in emerging markets will keep demand for raw materials (steel/iron ore) high.

* JNJ. Defensive play. Any weakness in the dollar or panic about the soft landing should propel this issue higher.

* MA. Tremendous organic and secular growth in Mastercard's business should provide great upside for this stock. I think it will be beaten down over concerns about the strength of retail... but this is not levered as heavily to retail as most people think. That means buying opportunities.

* USG. Strong fundamentals because of home remodeling, which happens when the housing market slows down. USG also looks cheap here and could be taken out by PE guys or Mr. Buffett.

This will be our model portfolio so far. There is space for speculation which happens orthogonally to these positional movements. I am also still looking for a good technology play for 2007, and any ideas would be welcome. AKAM and NVDA did well in 06 so they may continue to do so. CSCO also looked strong during the December selloff. Updates will be posted here.

apple recap

Welcome to 2007! Last week was an intense one for AAPL, and the drama made for some great trading opportunities. Shortly after the rumors about falsified documents came out on Wednesday, we bought in long at about $78. The next day, the FT repeats the story and the stock is knocked down again to $80. Another buy-in opportunity and we went more long. It was a great trade, because Friday the uncertainty cloud was lifted and AAPL moved straight up to our resistance point at $85. We sold a little there but are still long ahead of Macworld.

The exit strategy will be a phased one. The next resistance point is a soft one around $90, where it held support in the face of shorts in late November. We will be selling a little of our position there.

It should be nonstop good news and rumors from here through Macworld next Tuesday, so I think there will be nothing but upside. We will be selling into strength wherever it materializes, with the goal to be completely unwound ahead of Macworld. If Jobs does not release a phone I think we will see some panicking, and the upside if there is a phone is limited.

Apple reports Q4 earnings on the 17th, conveniently after Macworld and just before options expiration. If AAPL gets knocked down because of the product announcements, I think there will be tremendous upside ahead of the reports. When I visited best buy, the salesman noted that they sold out of every shipment of macs that came in. Not only that, but the ipod case looked like an earthquake had hit it. Anecdotal evidence, to be sure. But I like the risk/reward if we're back in the 80s after the expo.

dead wrong!

If you thought I was not posting because I jumped off the balcony after this week, you would be very close to right. Disastrous action this week:

* AAPL fell off a cliff. Broke through $85 on the downside, holding now around $83. I backed up the truck and bought more on anticipation of a great quarter and a blowout set of announcements. It should be all good news from here - a calm restatement around the options stuff, talk of Christmas iPod sales, MacWorld buzz and finally earnings announcement on Jan 17. We should run from here. I am calling a bottom.

* ORCL. Disappointing quarter, and I went long. I still like the risk/reward on the trade but it didn't work out.

* RIMM. Didn't get the risk/reward I was looking for (call options were very pricey), so I sat this one out. And of course it moves higher!

I am taking donations.

ORCL and RIMM earnings this week

This week, Oracle and Research in Motion both report earnings. Big options volume ahead of the reports. Here are my ideas:

* ORCL. Oracle was hit this week with reports from Lehman that database revenues would disappoint investors this quarter. The data apparently come from customer surveys. Personally I don't have much confidence in this, as databases remain very important to the web industry as a whole. The report however did provide a nice haircut and profit taking move to the downside over the past week. This leaves ORCL in a great risk reward position. Expectations may be dampened enough that a weak report will not trigger much of a downside move in price. I like the risk/reward going long ahead of earnings tomorrow.

* RIMM. Research in Motion is likely poised to report blowout numbers after releasing the popular BlackBerry Pearl this quarter. Analysts are probably being conservative in their estimates of Pearl sales. The downside here is that RIMM has moved up so much that all the good news may be in the stock; any weakness would be severely punished. Palm Inc. reports on Tuesday, so investors may be looking at Treo sales as indicative of what RIMM may be capable of delivering. I think this is apples and oranges - if there is any downside move in RIMM because of what Palm does, I would consider it a buying opportunity.

Summary: long ORCL, cautious on RIMM unless Palm gives us a way to get into it cheaply.

New ways to play a Santa Claus rally

I've been doing some research today on some new ways to play a Santa Claus rally. After freeing up some capital today I have some buying power to deploy. Here are some ideas:

* JNJ. I have been looking at rotating into healthcare at the end of this big tech push towards Christmas. JNJ looks like it is breaking out here and I see nothing but upside. I may pull the trigger on a small part of my position tomorrow.

* AAPL. I am still hugely bullish on AAPL, even with the strange (options-related?) trading activity today. Everybody was up, but Apple was down. Maybe profit taking on the big move yesterday. But since AAPL is way above the $85 strike, I think bulls will try to push this stock above $90 in tomorrow's session. If it doesn't happen I've got plenty of buying power to step in on the dips (unlike last time).

* LOW. Lowe's is a great way to play housing weakness. Low interest rates mean cheap equity loans for remodeling. Low housing prices mean people will be sticking around and getting a new kitchen rather than selling their houses for new construction.

That's it for now. I still like Mastercard on any weakness, and I think GS is going to do really well as the bulls start to pile in over the next few sessions after options expiration tomorrow.

taking some profits

Taking some profits today on a nice up day. I closed out the last part of my options position in Exxon Mobil (XOM) with a nice gain. I was a bit of a hog with this trade; things got a little out of control last week. I bought more XOM on the dips and today I exited with a healthy gain. The right play would have been to take a bit off the table at the 52-week highs.

I've also closed out a bit of Research in Motion (RIMM). Not the entire position. I felt I was too exposed to tech here and the Q4 tech rally seems to be losing steam.

In other bad news, my Boston Scientific (BSX) play didn't materialize at all and I'm completely underwater in those options.

And GS didn't move at all on blowout numbers. It is basically pinned at $200 for options expiration week. I think it should rally to year end and be comfortably in the $220s shortly. As I wrote in my analysis earlier I think this could be a $240 stock.

The highlight of my portfolio at the moment is a hugely successful position in Apple Computer (AAPL) ahead of Macworld. I'm staying long this one until Jan 5 when the stock should be trading in the triple digits!

Picks for the end of the year

Avid JP golf + stock readers, my profound apologies for leaving you hanging through the big rally in November. I've been engaged in moving my household up to beautiful and exciting Sunnyvale, CA. And it has been a little bit destructive for the old portfolio! Not enough rigor spells doom + gloom. But no worries, I think we are well positioned to profit from any year end rally.

As I write this, here are my holdings:

Apple Computer (AAPL), Google (GOOG), Goldman Sachs (GS), Halliburton (HAL), Lowe's (LOW), Mastercard (MA), NY Stock Exchange (NYX), Research in Motion (RIMM) and US Gypsum (USG).

I had some positions in Exxon Mobil (XOM) earlier this week, which I closed out. I moved out of XOM and made a speculative short-dated options play on GS. I think these guys will have a blowout number. If they can manage $6 a share per quarter, that implies a valuation of $240-275 per share at a peer-justified multiple of 11 or 12. I think tomorrow before the close they will announce such a number. It's been a great quarter for trading and also not bad for M+A activity either. Best of all, I think 2007 is going to be great for traditional underwriting activity too. So I like GS here. I didn't play this with Dec calls (I could have) but instead January calls. Last time it took a little while for the bulls to pile in. It could be a similar situation this time, especially if a Santa Claus rally materializes.

a nice looking pie

Feels like a pretty good week in store. Lots of great earnings plays and plenty of free time to trade!