First, let’s start with the stupidest damn headline I’ve seen in years: “Stocks and Dollar Up, Oil Down on Osama Bin Laden News”.
I’m sorry, but that just doesn’t make any sense.
I’m not knocking the fact that we finally brought down a self-professed mortal enemy. And it blows my mind that he was finally found not in some cave or rat hole… but rather, living a life of luxury in a heavily fortified compound next door to a Pakistani military academy.
Come to think of it, that last part doesn’t really shock me all that much.
What does astound me is former Pakistan President Pervez Musharrif ‘s chutzpah. India’s CNN-IBN news channel taped him whining as to how we didn’t trust the job to his country’s various police and security organs:
American troops coming across the border and taking action in one of our towns, that is Abbottabad, is not acceptable to the people of Pakistan. It is a violation of our sovereignty… it would have been far better if Pakistani Special Services Group had operated and conducted the mission. To that extent, the modality of handling it and executing the operation is not correct.
Because they only had ten odd years to get the job done, right?
Perception Trumps Reality
No, what makes that headline crazy is the fact that, economically speaking, we are more likely to see oil climb than fall on this news.
This is really a straightforward concept. If I have to knock down an inconvenient paper wasps’ nest out at the farm, I can expect my “threat level” to rise in the short run as the damn things swarm about angrily, looking to teach me a lesson in pain.
In the same fashion, we can most certainly expect Al Qaeda to do something desperate so as to reestablish their iconic position as leaders in the global jihadist movement.
The Middle East oil patch represents a target-rich environment within easy striking distance of Al Qaeda’s strongest operating bases. A strong enough hit there would raise energy costs, accelerate inflation, and crimp Wall Street profits. It could even tip the U.S. back into recession…
Heck, even the suspicion of same ought to stimulate a speculative rise in crude oil futures and drop in S&P 100 futures.
Head & Shoulders Above the Rest
These are the economic facts of the matter.
But all of this recent upside activity just goes to prove yet again that ideas trump facts when it comes to market action.
The real reason the markets rose on the news was entirely idea-based, i.e. memetic: the markets rose rather than fell on the assassination of Osama bin Laden because the event happened at a moment when the most significant measuring set of those markets, economically speaking — the blue chip stocks of the S&P 100 (OEX) — was already breaking through a critical resistance barrier: the neckline of an inverted Head & Shoulders pattern.
A head and shoulders pattern is one of the more reliable — and intuitive — formations available to technicians.
The upright form shows you an asset setting fresh high prices suddenly breaking trend and setting a lower high.
Once price descends below the neckline, the odds are 70/30 of a breakdown to the target, which is obtained by doubling the gap between the head and neckline.
The inverse is just as reliable; once we see the wave train of lower lows broken — and price moves above the neckline — we can reasonably expect price to move up to the doubled target.
With this reliable pattern already in place, the direction the markets took on the death of OBL was biased from 50/50 to 70/30 long…
Even better, the H&S pattern offers us a clear upside target of OEX 635.73 — a 4.63% improvement over the price of OEX 607.62 available as I sit to write.
Was the market “wise” to rise on this news?
We could argue about that ’til the cows come home… and not be a nickel richer when we were done.
Room to Ride
With a clear upside trend in place and an upstroke within that trend more likely than not, it’s not a question of “PC” (philosophical correctness); but rather just a matter of choosing the best upside play to ride the pending swell.
We already have calls against Ford (NYSE: F), Gold (NYSE: GLD), Energy and Oil (XLE), and Trash (NYSE: WM).
The gaping hole in our collection would seem to be Tech.
And these days, when you talk Tech, the inclination is to run straight to Apple (NASDAQGS: AAPL), as these guys have almost monopolized the air in this space…
Seriously, they picked up more chatter with the release of a white plastic shell for a year-old phone than Research in Motion (NASDAQ: RIMM:) could generate with a touch-screen slate and brand-new operating system.
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Back Door into Apple’s Hot Game
There are two big problems with Apple.
First, the whiz kids at Cupertino seem to have delusions of grandeur. Shares are of AAPL are just a whisker shy of $350 right now. It’s almost like AAPL isn’t a company anymore, but rather the next Berkshire Hathaway (NYSE: BRK A)!
The second problem is technical. AAPL shares are not currently benefiting from Apple’s attempts to own Tech. While certain Tech ETFs like S&P’s XLK are mimicking the larger market’s H&S pattern, AAPL is still demonstrating a rock-solid, short-term downtrend.
However, there is a back door into all that Cupertino cash that doesn’t cost an arm and a leg and has a better looking chart to boot…
I’m talking about Apple’s latest partner in crime, Verizon Communications Inc. Com (NYSE: VZ).
I presume you don’t live in a hole (or an armored fortress in Abbottabad), so you probably already know a bit about Verizon’s recent partnership with Apple to sell and service the almighty iPhone…
Not that the telecom giant was hurting before the deal. But now we are looking a positive river of income that is pushing VZ up an over its competitors profit-wise.
I should put in a brief caveat here: No, I don’t own VZ shares right now (although I really ought to do something about that). But they do have me over a barrel digitally. If I were to short these guys, they would probably turn off my cell phone…
And land line… and TV set… and Internet connection…
And then my kids would devolve into some kind of Lord of the Flies savages, kill me, and put my head on a pike.
Take a look at that VZ technical chart I mentioned earlier.
I have shifted to a longer-term time scale with weekly candlesticks so as to clearly show VZ’s solid rising trend and stacked buy signals, and its probable and possible targets of $41.39 (+9.76%), and $46.24 (+22.65%) respectively.
Risk to a long play here is represented by an abrogation of the rising trend and a drop to $36.09.
I advise you to take a gander at the VZ August 36 Calls (VZ1120H36) currently trading at $245 with a posted Delta of 0.7958. Our Probable Target of VZ $41.39 ought to push this contract to $516 for gains of 114.%.
Once again, this really ought to be enough for most any conservative trader. But if you have nerves of steel and cash to waste on speculations, you might consider holding out for VZ $46.24, which might see these calls hit $9.02 for gains of 274%.
And now a bit of scut work: Awhile back, I posted an unauthorized Gmail address where you could write in to let me know how you are doing these days. Boy, did that ever tick off my publisher’s tech guys… After they turned off the shock batons, they gave this official contact address instead: email@example.com.
So write me already — wins, losses, family news, favorite recipes, whatever… It’s all good.
Editor, Wealth Daily