Wednesday, January 10, 2007

Evening State of Play

The commodities world continues its struggle tonight following the breach of the CRB at the 200 week - yes, WEEK, not 200 day, but 200 WEEK moving average. IBD is certainly bearish along with most everyone else... (Click Here) ... which is probably signaling that it's almost time to buy.

But with respect to crude oil as one example, a Bollinger Bands study shows that there's still more room left to the downside: The above monthly chart measures a further move down into the $51-52 range for crude... not that far really, with crude trading at about $53 tonight, but miles away if you're say a hedge fund which happens to be heavily leveraged in the futures market. Gold also struggling a bit, down around $3 and may go lower if crude makes a run for $52 tonight. Nat gas down about 2%. The dollar is mostly flat ahead of tomorrow's ECB rate decision. No rate change from Trichet and company is expected, but the question remains just how hawkish Trichet will sound. A little less on the hammer from Trichet could allow further upside for the dollar.

By the way, to learn more about Bollinger Bands, go the website of the man who developed them - John Bollinger... one heck of a great guy, who I got to know from my days working at FNN and who I've kept in touch with over the years:

Genentech (DNA) earnings came through better than expected.. no surprise there. Blowout numbers from this leading biotech have become such an anticlimax that the stock ended up falling a quarter percent in after hours trading. But make no mistake about it, the DNA results and guidance were strong and will give the bulls a good piece of ammo to work with to get the market moving in the direction if a string of other companies can provide similarly strong numbers. AA, DNA... it's crucial that list grows longer.

Shares of XM Satellite and Sirius surged, with XM jumping 10% and Sirius up 6%. SHSH lifted its price target on XMSR citing, "potential for a merger providing downside support. W/ lower perceived risk now, we are raising price target to $21 from $16." says, "XMSR and SIRI are expected to make an announcement at the North American International Auto Show in Detroit on 1/11/07." That would be Thursday, folks. Nearly 20,000 January 4 SIRI calls changed hands today at a 15c offer, with a theoretical value of 11c. The more interesting action is in the XMSR options chain where there's actually a better chance of seeing some sort of value extracted. With Solly upping its target to $21, we looked at the February chain which factors out the distortion of the former LEAP status of the January options, and indeed, volume did outstrip open interest on both the $15 and $17.50 strikes. But this chart of caution. Despite the recent surge in shares of both companies, one wonders why volatility has actually come down in XMSR:

The low volatility is a red flag that the premium involved may not be to the liking of speculators either because the chances of a deal are really still low, or it's going to be one of these deals where there just isn't much in it for shareholders since a lot of debt holders must be taken care of as well. But pay no mind to me, S&P says a deal between the two companies won't even fly: Click Here.

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