Saturday, January 20, 2007

Random Weekend Musings Part 2

A couple of key earnings reports are front and center on Monday:

During the course of the weekend employees of Pfizer, the maker of Viagra and Lipitor among many other drugs, get to wait for their company's CEO Jeffrey Kindler to unveil a massive cost cutting plan on Monday morning that is expected to mean the elimination of more than 10,000 jobs. (Read more about it here). Of course, those employees will get the standard severance.. nothing like what former ceo Hank McKinnell received for being forced out - the 200 mln severance package.

Options players have been making bullish bets ahead of the Pfizer news. On Friday more than 10,000 Pfizer Feb 27-1/2 calls traded on open interest of over 27,000 contracts, vs put volume of 5,281 on open interest of just over 37-hundred. The company is also due to post earnings Monday morning. As I noted on Friday, drug/pharma stock groups have been strong in recent weeks.

The stock is looking a bit overbought, but as they say, "we shall see what we shall see".

Texas Instruments earnigns will be out after the bell on Monday. TI gave shabby guidance in December, so shabby numbers are expected. The surprise element for Monday evening might be in the area of margins weakness. 38c is the expected bottom line number, $3.43 bln the forecast top line consensus number. On the options side, open interest on the Feb 30 calls out numbers the puts by a 4 to 1 margin with volume on the call side about double the put side on Friday.

Clearly the TI chart has been a range bound mess for the last couple of years, but that may offer an explanation as to why the call activity has been as heavy as it has been in the Feb30's. Support has at least been decent at just above the $28 level. I sure wouldn't touch them with a 10 ft pool, but to each his own.

Economic calendar on Monday features the Conference Board Index of Leading Economic Indicators.

Through the rest of the week, there's a slew of quarterly results which I will highlight day by day. I started off with PFE and TXN because those two sets of earnings could set the tone for the market in general this week.

For the real you-know-whats and giggles, President Bush delivers his State of the Union address in front a Democrat led Congress on Tuesday night. I would imagine that if the Treasury Department has any input, the speech will be as market neutral, or positive as possible; and in general the goal at 1600 will be to keep that Joint-session clap-0-meter going. It is amusing, however, when the President throws in something tailored just for his party and one side of the aisle is cheering wildly as if they're the studio audience for the Price Is Right, while the other side of the aisle sits motionless with icey stares - Clinton and Bush have both done this well. But in the end, with Bush trying to out rank Franklin Pierce on the list of Best/Worst Presidents, I would imagine they will try to keep all political contestants happy on Tuesday night. Gosh, will Bush give Nancy a big, big, long hug and massage on the way up to the podium?

Wednesday will be a quiet one on the economic calendar.

Thursday, the National Association of Realtors will report December existing home sales... can't wait for the NAR spin on how good things really are in the real estate market if you just keep an oooopen mind!

Going into the week, the percent of Big Board listed stocks on point and figure buy signals remains above 70%, a signal the market is overbought. More on this and some other thoughts on the markets later Sunday.


Anonymous said...

Hey Jim-

I disagree with your comment regarding the "bullishness" surrounding the Feb call buying for PFE. Let's see...earnings on Monday and entire month of open interest for only $.40 above $27.50? That's only a 3% move to break even. To me that's not alot of confidence this stock has a big break to the upside coming. Here is my analysis of the call buying - sell the shares/buy the calls in an effort to limit your downside.

Jim K said...

that makes as much sense, if not more sense than my thinking. it will be interesting to see what happens. thanks for commenting!

OptionPundit said...

Jim, a good blog and a good article about PFE. I am an option player and generally I play neutral strategies to take advantage of time decay, and IV.

One thing that I have noticed is the ATM IV difference between Feb options and March options is about 5% while April onwards 7%. So in my opinion street is expecting about 5-7% stock price movement, Which direction, I don't know. But backspread might eb a good option to play as "move" is expected.

Profitable trading,

Jim K said...

Interesting analysis, and thanks for stopping by, Optionpundit... nice blog!